Powell's Appearance Before Congress Will Captivate the Market the Next 2 Days

US futures point to a positive albeit modest market open here on Tuesday ahead of Fed Chairman Jerome Powell beginning his two-day, semi-annual monetary policy reports to the Senate Banking Committee and the House Financial Services Committee. Those events begin today at 10 am ET and it is rather safe to say we will be listening for clues as to what's next for monetary policy following the combination of stronger-than-expected economic data and persistent inflation.

As of now, the CME FedWatch Tool shows investors are expecting a 25-basis-point rate hike exiting the Fed's March 21-22 policy meeting. We will be listening for whether Powell suggests that something stronger in the way of a rate hike may be needed in the near term or whether we could see rate hikes in the second half of 2023.

However, as we discussed in yesterday's Rundown we do not expect Powell to make any frank disclosures about what's ahead. We will be watching not only the stock market but also the dollar and 10-year Treasury yields to gauge the herd reaction to Powell's comments. The recent drop in those yields helped lift the market over the last few days, but should they venture back above 4.0% in response to Powell's comments or to economic data coming in the next few days, the market isn't likely to react too fondly. For that reason, we will continue to move forward carefully and keep our inverse ETF plays. We've received several member questions about adding new positions in those plays at or near current levels, and we would be more comfortable doing so near 4,100 on the S&P 500.

While we digest all things Powell-related this morning, we are also seeing an uptick in geopolitical tension. China's new foreign minister Qin Gang said relations with the US have departed from a "rational path" and warned the US risks plunging the two countries into conflict. More than likely, we will see a response out of Washington later today, but how much of this is just rhetoric will be determined in the coming days and weeks.

As we wait for Powell and his words, this morning we learned exports from China fell 6.8% year over year in January-February, which was less than the market consensus of a 9.4% drop. Imports to China tumbled 10.2% year over year during the first two months of the year, not quite double the expected decline of 5.5% and sharper than December's 7.5% drop.

However, when travel service provider Trip.com (TCOM) reported its consensus-topping December quarter results last night it shared outbound air ticket bookings and hotel bookings increased by more than 200% and 140%, respectively, versus year-ago levels during the quarter. The company went on to say, "We have seen rapid growth for China's outbound travel since the beginning of 2023, showing a strong pent-up demand for outbound travel." We see this information supporting recent China Service PMI data, adding another layer of confirmation to the country's reopening and our thesis behind our Coty (COTY) shares.

Turning to the eurozone and inflation, the latest European Central Bank Consumer Expectations Survey showed the median rate of perceived inflation over the previous 12 months declined to 9.5% in January from 9.9% in December. Median expectations for inflation over the next 12 months edged down to 4.9% from 5.0%, while median expectations for inflation three years ahead declined significantly to 2.5%, from 3.0% in the previous month. The survey also showed consumers expect their nominal income to grow by 1.3% over the next 12 months, up from 1.0% in December. With inflation expectations outstripping those for income, it's not surprising to see expectations for nominal spending growth over the next 12 months fall to 3.8% from 4.2% the previous month.

This afternoon, at 2 pm ET, the January Consumer Credit data will be published, and it is expected to show consumers tacking on another $20 billion in debt after adding $11.56 billion in December. We'll parse that data when we have it, but it would support the strong January Retail Sales report data,. However, as we have shared previously, the higher credit card debt ticks, the more disposable income it will cost to service that debt. That's not great for consumer spending expectations and a reason to think consumers will continue to flock to Costco (COST) and similar retailers.

Sticking with Costco, this morning the shares were upgraded to Buy from Neutral at Northcoast Securities with a price target of $560 vs. the almost $550 consensus and our $575 one.

And ahead of the February jobs data coming at us later this week, after laying off 11,000 employees in November, reports indicate Meta Platforms (META) will cut "thousands" of additional jobs in another round of layoffs that could come as soon as this week.

At the time of publication, Action Alerts PLUS was long COST and COTY.