Hawkish Fed pricing outweighs urge of dip-buying

Market sentiment is mixed. There is a certain will to buy a dip in US indices, yet the aggressive hawkish Federal Reserve (Fed) pricing doesn’t allow the appetite to get restored. It results in hectic pricing as the US yields go up.

The US 2-year yield advanced past the 1%, while the US 10-year yield slightly retreated from the 1.90% mark.

The actual market pricing factors in the possibility of a 50bp rate hike in the US in March. The idea of 50bp-hike opens the door for more aggressive pricing on the yields, and that could continue weighing on the investor mood, if the focus remains heavily on the rates.

The sharp rise in US yields is the number one reason pushing the stock indices lower since the start of this year, and the major indices are much more vulnerable to interest rate hikes now than they were before, because the Big Tech has an increased weight in the indices, and they are vulnerable to rate hikes.

Nasdaq is set to test its 200-DMA, near the 15000 mark, and the S&P500 stepped into the bearish consolidation zone, having cleared the 100-DMA support at yesterday’s slide.

Limited risk appetite and mounting tensions between Ukraine and Russia support a rise in gold prices despite the rising US yields. The price of an ounce rallied almost $40 in two sessions, but the gold bulls could well bump into a solid resistance within the $1850/1860 band.

Ukraine-Russia tensions, combined with OPEC+ struggle to revive output are also giving an extra push to the oil bulls. In fact, the low oil output decreases the cushion of spare supply, which is now expected to dive to a 4-year low by July. And the periods of lower cushion tend to have a positive impact on oil prices. Yesterday, US crude flirted with the $88pb mark. It is no longer a matter of if, but a matter of when the price will reach the $100pb mark. That’s good news for energy stocks, but bad news for inflation, and the Fed hawks, and the US yields and the overall market sentiment.

Strong earnings are the only hope for the equity bulls in the short run. The bank earnings have been strong, but not perfect. Big banks have diverging forecasts regarding the future. Some expect that the rising interest rates will increase their profitability while others see inflation as a threat to profits.

Netflix will be the first FAANG stock to reveal its Q4 results. The expectations are soft amid reports of slowing download trends in December across all regions, which could hit the subscription growth, a key metric of performance for Netflix. The tech stocks don’t have the luxury of deceiving their investors at an environment of rising Fed expectations, so a softer-than-expected set of results could further hammer the investor appetite.