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Monday, March 6, 2023
Today’s newsletter is from Brian Sozzi, Editor-in-Chief of Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Read this and more market news on the go with the Yahoo Finance app.
I think the market is having a blast.
While I really enjoyed watching Salesforce and C3.ai stock explode after last week’s gains, there have been few and far-flung risers in this direction (both directions) in recent weeks.
But if you take a step back and take the stock market to levels today, the muted action makes a lot of sense.
Investors face a new dilemma – call it analytical paralysis in the face of all the incoming data flowing in. On one side we have hot retail sales and inflation reports from the government – both of which question whether the Federal Reserve is acting fast enough to squash inflation.
At the other end of the spectrum, the job market remains solid (as likely to be reflected in this week’s jobs report). However, if you look at the fourth-quarter results (and conference calls) from Best Buy, Home Depot, Target, and other retailers, you’ll see consumer weakness in the big commodities. Take a look at Target’s earnings and you’ll see a buyer shift to cheaper private label products because they’re less inflationary and just got fired by a tech company.
All in all, this is a confusing time to be an investor — something market insider Keith Lerner of Truist notes in a new note he sent me:
“Recent actions are consistent with a key market dilemma that we have highlighted: if the economy remains stronger, as we have seen recently, Fed policy is likely to remain tighter and this will weigh on market valuations. Or instead, if the economy weakens it will put pressure on profits. Neither of these results are favorable for prime market valuations.”
The story goes on
In other words, Mr. Market doesn’t know what he wants!
And if you think all bad news of any kind is priced into stocks, Lerner adds these thoughts:
“For perspective, the S&P 500’s forward P/E of 17.6x is still slightly above the 10-year moving average of 17.2x, and that’s in the context of a high level of uncertainty around economic growth, inflation and earnings. Prospective earnings estimates are hovering near a 52-week low and downside risks remain: the US 1-year Treasury yield has risen above 5% for the first time since 2007, and the US 10-year Treasury yield has fallen hovering around 4%, it’s also almost double the average over the past decade.”
As always, I leave you with this… Happy Trading!
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