The 'Yield Hurtle' is the inhibition to this market stabilizing meaningfully. Its been my contention that the Fed policy risks wrecking that which they profess saving; primarily because much of the inflation won't be contained by merely a hiking of the Funds Rate or draining the balance sheet.

The hotter the economy gets; the more problems face the market; in theory. It is notable that we knew this probability; that the Fed could not strong-arm the economy with higher (normal return actually) interest rates and have much of an impact on inflation; since that majority of inflation became entrenched and in some cases related to exogenous influences, like climate change and war.

Yes Fed traditional moves to limit liquidity do work if applied sternly; but given (proxy) wartime mentality, higher Oil prices (likely to persist within reason); as well as higher food costs (impacted by climate change not demand variables), it seems the Fed needs to come to grips with what they impact, as well as the areas they don't have much (if any) effect on. I've been saying this for weeks, and most 'Fed-heads' seem to persist with rationalizing their hawkishness.

Regardless of that, the 'tone' of much of the market (outside big-cap laggards that many persist in focusing on as leaders) hasn't changed: it's corrective at present, not really negative. Hence the fight just engaged at the S&P 200 Day Moving Average, which still has the chance to be broken perhaps just ahead. After all, we are 'in' the gap between the 50-DMA and 200-DMA right now.

Taking out S&P 200-DMA; then bouncing, would be a reasonable expectation. The issue would be 'if' 200-DMA then becomes resistance instead of support. It might become that for a short period of time to confuse technicians further, at the same time it wouldn't deny ensuing Spring Rallies emerging thereafter.

In sum: stocks stumbling as the 2-year moves higher (toward 5% almost) and that tends to drain funds from equities into Treasuries, even though investors are primarily interested in picking-up stocks that can perform during recovery.

So that leaves open the prospect of not much more than a normal retracing of January's gains, not all the way, but something like 1/2 to 2/3 of that rise. Sure that would be in harmony with our overall forecast, but there's room for some drama. And much of that may relate to 'Oil' prices (up) and geopolitical angst. By the way notice that many of the so-called 'retail' or 'defensive' areas many embraced (including food and consumer goods stores) are in their own 'bear'.

There is a comment going around about the other day's FOMC Minutes: it is 'who let the doves out'. There was little acceptance of inflation realities, as voting members tended to 'higher & higher' rate projections, 'as if' they really can tame inflation. It might be tamed, but it not primarily because of their act.

The 'heat' in much of the USA (blizzards in other parts) is part of a disheveled environment that mitigates limiting agricultural prices. Money managers tend to be comfortable holding bonds (bankers hours allowed) for now; but as this changes they will be looking elsewhere; though for many actuarial demands, the higher rates are welcomed.

Meanwhile we're not focusing on stocks that do well in recession; primarily as a result of believing most recession is behind. Actually the proof of that is the lack of retrenchment by our consumer-led economy; reflecting the Nation very largely ignoring the efforts by the Fed. So far the Fed is restraining equities a lot more than they're restraining inflation; though as natural factors ease price levels, I'm sure they'll scurry to accept credit for bringing down price levels.

Obviously the danger is the Fed goes so far that they 'break something'; but it is important to realize the Fed is fighting an immovable object; like Congress; a White House determined to spend more money (infrastructure and Defense) both politically and of necessity; and a smaller work force (various reasons of course including the saddest, which was the number of Covid-related deaths).

So it's an uncertain environment; including the 'actual' environment. For just this moment most stocks are heavy and moving in unison with the market as opposed to behaving independently. Probably because rate fears dominate (a late phase of it; while too many economists presume nothing changes and the Fed itself believes it has ample power to influence what is now 'entrenched' in terms of wages and to an extent prices. Some will come down on their own; not because the Fed goes a Quarter of a Half or does nothing. Fed hubris; but as this persists odds allow for S&P 200-DMA to break before any Fed pivot.

Bottom line: a break of the S&P 200-Day Moving Average has been targeted for some time here in February; and throw in the seasonality and contemplate how it may lead to a washout or exhaustion, preceding nuance of rebounds. If may be a tired phrase to say 'Spring Rally'; but that's where this could head in the course of the next couple months. Whether than commences soon or very likely by the 'Ides of March', remains to be seen; but is worth contemplating.

Yes, if the major story is competition from 'yields' (it has been but discussed more now), then imagine how that transitions when yields back off gradually. For now S&P is dicey and probably fights a bit on Monday before rebounding but also an interim within the corrective action until shown to be otherwise.

In a news vacuum (which this isn't); we'd simply expect S&P to break the 200 Day, rebound, horse around, fail; and washout; as part of exhaustion process continuing in the projected February retreat. Cautious and uncertain; with just a few stocks capable of stronger moves 'if' they get favorable interim news.

More By This Author:

Market Briefing For Thursday, Feb. 23
Market Briefing For Wednesday, Feb. 22
Market Briefing For Tuesday, Feb. 21