Bad News Is Bad News Again

LevelFields Weekly, Jan. 22, 2023

The indexes saw volatility last week and traded sideways with the S&P 500 failing to clear an important resistance level at around 4150. As predicted here, the narrative seems to have shifted from the belief the Fed will cut rates in 2023 to the realization the Fed is playing the long game and will keep rates higher for longer. The expected interest rates projections got updated, and that caused investors to recalibrate the likelihood of a recession and the impact of higher rates on stock prices. This was largely in response to higher than expected inflation readings for January, and higher than expected wholesale prices reported. Federal officials and various market influencers also weighed in to say the inflation fight is far from over — strap in for the main event because this ride is about to get bumpier.

The government also reported sobering news that the U.S. is choking on debt. Total household debt rose by 2.4 percent to $16.90 trillion in the fourth quarter of 2022, according to the latest Quarterly Report on Household Debt and Credit. Credit card balances increased by $61 billion to reach $986 billion, surpassing the pre-pandemic high of $927 billion. The share of current debt transitioning into delinquency increased for nearly all debt types. The higher costs for things are being paid for by debt. More defaults come next.

China retaliated for the U.S. shooting down its spy balloons by sanctioning Lockheed Martin and Raytheon from doing business via their military sales to Taiwan. Lockheed makes the planes that shot down the balloons and Raytheon makes the missiles. The sanctions prevent investments and doing business with these companies but is largely political theatre.

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