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More of the Same to Start a New Trading Week

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Monday, January 24, 2022

Mondays in late January can often bring harsh realities, depending on where in the U.S. you live, but the stock market is bringing the harshness to even the most pleasing of climates this morning. The sell-off continues, rolling back the market exuberance felt in the final months of 2021. The Dow is -445 points, the Nasdaq -260 and the S&P 500 -70 points at this hour.

We’re looking at a Nasdaq that is currently -14.3% from its all-time highs posted just 10 weeks ago or so; the S&P, while not faring as badly, is down -8.3% from its all-time highs. And this is happening even as Treasury bond yields — an early indicator of higher interest rates — have moderated of late: the 10-year, which tasted 1.9% for a moment last week, is now at 1.74%. The 2-year, while still over a full percentage point has mellowed a tad to 1.01%.

We’ll see a big week of economic data, along with Q4 earnings season in full effect. Consumer Confidence, Q4 GDP, PCE Inflation and Durable Goods orders are just a few of the markers on tap, while Microsoft (MSFT - Free Report) , Tesla (TSLA - Free Report) and Apple (AAPL - Free Report) all bring out new earnings results as the week progresses.

But the economic event market participants will be paying most attention to today will be the Federal Open Market Committee (FOMC), which commences tomorrow and concludes Wednesday. Perhaps even more important to the decision the Fed makes — assuming for a moment it won’t bring the taper to zero and jack up interest rates 50 basis points immediately — will be the press conference from Fed Chair Jay Powell, where he will have the opportunity to articulate where he sees inflation, employment, productivity, etc. going forward in 2022.

Right now, a bleak outlook from Powell is being priced into the market. This allows for an opportunity to bounce off a more-positive-than-anticipated outlook from Powell on supply chain issues, demand and, of course, interest rates. He will likely also be pressed on the drawdown of the Fed’s $9 trillion balance sheet, which was something that apparently slipped his mind to talk about the last time the FOMC met.

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