This week, we are seeing a continuing trend of weakness in the equity markets.
Mixed inflation data and Fed meeting notes have put investors on hold causing the S&P 500 to test its intermediate trend:
Our index and sector matrices are indicating that the market is a bit trendless right now. No major areas/sectors are in a leadership position, with the exception to the US dollar:
The current lack of leadership in the market can really be highlighted by looking at the rotation of the individual sectors within the S&P 500 Index. Typically we would expect to see defensive names to show leadership in market pullbacks. However, that leadership is not present – possibly indicating that investors have been profit-taking and are now waiting to see the next few inflation data points before recommitting capital.
The one leadership area that is emerging is the US dollar. The idea of a stronger than expected Fed is causing a rebound in the US dollar:
The strengthing in the US dollar is being caused by a shift in the outlook for future rate hikes by the Fed. Over the past month, we have already seen the consensus change on what action the FOMC may take at its March 22nd meeting:
Going forward, investors should keep a close eye on inflation data points and how the markets react.
John Rothe, CMT