Markets are still hostage to the Fed, but managing to hang in there

Published Fri, Mar 3 20238:50 AM EST

Starting with the January jobs report released Feb. 3, it has been a relentless stream of bad news on the inflation front. The past week has brought no relief: from the January personal consumption expenditures price report to the prices paid component of the ISM Manufacturing report to Thursday's initial jobless claims and final unit labor costs measure, the message has been: The job market is still strong and inflation is rising again in some situations. Don't expect much relief from Friday's report, the ISM Services and the prices paid component. Surprisingly, we are a mere 4% off the recent highs of early January and are flat for the week going into Friday trading . But there is a lot of psychological damage that has been done. Money is again coming out of equities. Data from Refinitiv Lipper showed global equity funds saw a net $13 billion worth of outflows in the week to March 1, the biggest amount since Jan. 4, according to Reuters. Investor sentiment is awful The AAII Sentiment Survey, a survey of the membership of the American Association of Individual Investors, indicated bearish sentiment remained unusually high, and bullish sentiment unusually low. Bullish: 23.4% (historic average: 37.5%) Bearish: 44.8% (historic average: 31.0%) Neutral: 31.8% (historic average: 31.5%) Source: AAII "The market's between a rock and a hard place," Alec Young, chief investment strategist at MapSignals, told me. "It's a pocket picker. It's not oversold, it just drips down a little bit every day," he added. "People are losing billions of dollars trying to buy this market and it's just not working. After January we felt like it was safe to buy stocks, and it's actually not." With such confusion on the fundamentals, technicals have become a larger part of the conversation for many investors. Young notes that while the S & P 500 held its 200-day moving average (3,940) thanks to a late-day rally yesterday, there is little confidence that will hold. "3,800 [on the S & P 500] I think is buyable," he said. Bottom line: the markets are still hostage to inflation and the Fed. "We are all living in the Fed's world," Keith Banks, vice chair and chief investment officer of the pension and benefits plan at Bank of America, said on " Squawk Box " Friday morning. "We are forecasting three more hikes. The market has been desperately seeking the Fed pivot," Banks said. Until that happens, "We think it's going to continue to chop around."