We started the year with data showing a recession was likely 2024 or later, and that meant rates were “higher for longer”. So far, the data tells the same story, but there is one early read-through that is a red flag.

There is an old saying among technical analysts that the only thing that matters for stock prices is how much money is available and how much that money wants to go into stocks. The Fed just added $446B in liquidity and GDP is tracking 2.5% above estimates - with earnings season just a few weeks away.

Moves into Treasuries like last week were the norm before Greenspan, as were bank failures. If Powell wants to be like Volcker, he will stay on track regardless of SVB's collapse.

The February jobs report has downside risk as indications show that slowing job growth has begun, but this, along with the price action, is just following the textbooks.

It is becoming increasingly clear that near-term earnings estimates have been revised too low, which suggests strength beyond earnings season.

Just as investors are getting excited about the strength that companies have discussed this earnings season, economic activity has stalled.

Paul Volcker stated that monetary policy reduces inflation by causing bankruptcies. However, the current financial strength of balance sheets makes it difficult for bankruptcies to occur. This means that the improving economic conditions at the beginning of 2023 have led to higher prices, and the Fed Funds Futures are just starting to reflect this.

The market should now be catching on to the realization that a recession in 2023 is becoming less likely, but higher interest rates are going to continue. The question is, how does that trade from here?

Companies are confirming improved trends in January, but that creates a headwind regarding the Fed announcement on Wednesday, with employment appearing to have rebounded in January too.

Economists project a recession in the second half of the year. Analysts expect earnings growth to bottom in the first quarter. Meanwhile, leading economic data suggests conditions may have troughed in December.