Yesterday, stocks got a little toppy midday, and major indices gave up a big chunk of gains. Yet, it was a good start to the week as we brace for earnings and reactions to guidance. Meanwhile, the 2023 script continues from the worst to the first theme as the 2022 winners continue to edge lower.

2023 Sector Performance
$XLC +12% $XLY +9% $XLK +8%	$XLV -1% $XLU -2% $XLP -2%

 

Market Breadth was solid – especially the dearth of new 52-week lows.

Market Breadth	NYSE	NASDAQ
Advancers	2,241	3,006
Decliners	849	1,716
New Highs	86	119
New Lows	8	35
Up Volume	2.93 billion	5.09 billion
Down Volume	1.01 billion	934.40 million

Heat Map

There was lots of green on the screen, and mega-cap kept rocking.

For all the cheering, key resistance points continue to cast a shadow over the market. The S&P 500 must close above 4,100.

Recession Watch

Leading economic indicators continue to stumble and, in the process, are screaming recession louder and louder.

The market can live with a recession if it’s shallow. The Financial Executives International (FEI) report seems to be begging the Fed to pay attention.

I think they will, but we still get that 25-basis points (bps) hike next month. Yesterday, the CME FedWatch Tool moved back to a single rate cut in December.

Portfolio Approach

We added a new position in Consumer Discretionary yesterday in our Hotline Model Portfolio.

Today’s Session

Earnings are pouring in big time.  For the most part, they are mixed, and that’s putting it kindly.  The devil is in the details, which means all the major reports so far have a fair amount of hair. Probably the biggest disappointment is 3M (MMM), which barely beat on the top line but blew it everywhere else.

Market bears and purists are anxious to wrestle the narrative back and earnings will be their big chance.  But remember, a big part of the market drawdown has been adjusting for lower earnings.

Let’s not forget earnings have been unprecedented in recent years, so a pullback is more than reasonable.  The question is will they go back to trend. 

I do not think so.

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