Markets Have Another Choppy Week and Rotation Continues, Financials Have Rough Friday After Big Bank Earnings

Key Takeaways

  • The S&P 500 closed at 4,662.85 down from 4677.03 . The VIX settled at $19.19  and didn’t get too far above $20 this week.
  • Powell’s testimony assuaged markets somewhat, but they didn’t like Brainerd’s hawkish tone. A March hike is looking more likely with uncertainty around other tightening methods.
  • The rotation into Financial and Energy continued.  However, Financials suffered a down day on Friday when there was some disappointment in large bank earnings.
  • We see many risks that could derail equities and cause elevated volatility in the first half, but ultimately we believe stocks will finish 2022 higher. We think our YE target may be conservative given historical analysis of gains following a year like 2021.

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Markets had another choppy week and another week with very hot inflation data. At a yearly pace of 7%, the gain was the highest CPI reading since 1982. Even when the most volatile items are stripped out, the number was still around a 30-year high. The Fed has now completed its full about-face on inflation, retired transitory and based on the testimony of Lael Brainerd this week, the hike in March is all but certain. Retail sales came in soft and dropped at a much worse rate of -1.9% compared...
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