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Pre-Markets Struggle to Keep Weekly Gains; Durable Goods Sink

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Friday, March 24th, 2023

We knew when we started this trading week that we might have been in for a volatile ride, and it did not disappoint. We did have some economic reports expected, but we all knew the Fed’s decision on interest rates mid-week was going to cause ripple effects throughout the market. And it has.

Market indices look to give back their gains made earlier in the week, with the Dow -320 points at this hour, the S&P 500 -35 and the Nasdaq -65 points. If we keep this up, it will bring us a down week, which would come as some surprise to those who saw us launching off last week’s momentum into something resembling a rally. Those instincts may have been good ones — meaning the feeling the regional bank crisis has been contained is perhaps justified — but a new scramble toward understanding where Fed funds are headed has jumbled futures in the near-term.

We see preliminary results on February Durable Goods this morning (“preliminary” meaning “subject to future revisions”), and they came in much cooler than expected: -1.0% from a -0.3% estimate. The previous month’s -4.5% has been downwardly revised to -5.0%, so taken together we’ve lost more than a full percentage point on headline Durable Goods Orders for last month. This is a “bad news is good news” print, as we look for weakness to influence the Fed’s future decisions on interest rates.

This -5% result for January, by the way, is the worst level we’ve seen since cratering into the Covid pandemic in April of 2020. Ex-Transportation, this figure augments to unched, whereas +0.2% had been expected — and down from the already downwardly revised +0.4% the previous month. Non-defense, ex-aircraft (a proxy for “normal” business orders like printers, computers, etc.) came in higher than expected to +0.2% from the -0.2% estimate (and down from the +0.8% reported a month ago). Shipments vs. Orders was also unched, down from +0.2% expected.

So while on the one hand we see this as something that goes in the “pause column” for the Fed (which doesn’t meet on monetary policy until the first week of May), we now see some worry coming into view: are we seeing the foothills of a recession? Durable Goods numbers go atop a pile of economic prints so far that suggests Q1 may indeed wind up in negative territory. That would probably not spell “stock market rally.”

Yet, we knew we had a date with destiny, and it’s at the front door now. If this is indeed the beginning of an economic slide, it will be backstopped by future economic reads (PCE comes out a week from today) and we ought to see it coming. We can then adjust where we are portfolio-wise; we also need to see if we wind up skidding above recessionary levels. This drama’s got us by the edge of our seats, but we shall remember to breathe: nothing we’re likely to see is something destined to bury the economy long-term.

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