The odds that the Federal Reserve will raise interest rates by 0.50% at its March 22 meeting increased to more than 75% on Wednesday following stronger-than-expected data about job openings. There were a few signs of cooling, but overall, the demand for employees remains extremely strong and is increasing inflationary pressures.
The market is struggling to discount the impact of higher interest rates, a hawkish central bank, and the potential for economic slowing as the lag effect of Fed policy comes into play. The bulls are hoping that the market is doing an effective job of pricing in the economic uncertainty that lies ahead, while the bears say the market is still unrealistically optimistic and not taking the Fed seriously enough.
Weekly unemployment claims will be released Thursday morning, but the market is likely to stay pinned down and very choppy as it awaits the February jobs news on Friday morning and the CPI and PPI reports next week. These reports will solidify whether or not the Fed will raise rates by 0.50% at the next meeting and will likely impact the anticipated peak rate, which is currently around 5.75%, later this year.
The indexes are struggling to hold some key support areas and were bailed out by a last-minute rally on Wednesday. Some groups such as biotechnology (IBB) have already given back all of the gains they earned in 2023 and have cracked the 200-day simple moving average support.
Biotechnology is an important group to watch as it reflects a speculative appetite for higher-risk names. Another weak group is pharmaceutics, which is being pressured by President Biden's proposals to cut prices.
There are headlines this morning about the Biden budget proposal, which raises spending and raises taxes even more. There is no chance that this budget will pass, but it illustrates the very tough battle that is coming up over the debt ceiling. While this can potentially be a major drag on the market, there is still some time before it becomes a major worry.
The market is currently pinned down as it awaits more economic news. The bulls are going to have a very hard time generating sustained momentum with that uncertainty, but the bears don't seem able to really crack support with any degree of vigor.
It is a very tough trading environment, and my plan is to hold high cash levels, be very selective with any buying and stay patient. It isn't very exciting, but there isn't any great alternative.
