Daily Rundown: March 3

J.D. DURKIN: Good morning, members. AAP team member, Bob Lang, joins me here now to discuss the S&P 500 levels that he is watching, a check in on the Central Bank, and much more. Members, also please keep an eye on your alerts for Chris Versace's take on charge points, Costco, and much more. On that note, Bob, happy Friday. Thanks for being here my man.

BOB LANG: Great to be with you, J.D.

J.D. DURKIN: Let's get right into it here, Bob. What does this week's trading tell you about the market, and where stocks could be headed next?

BOB LANG: Well, I'm going to label this week reversal week. Obviously, we had a couple of big reversals earlier in the week on Tuesday and Wednesday. Then yesterday was something special for the Bulls if you will. The big reversal yesterday was on really good strong turnover towards the late part of the session. Not a whole lot of turnover earlier in the day when markets were making their lows. They pushed markets higher yesterday on again a little bit lower volume. But still was the price action was really notable here.

And what was significant, JD, was seeing the lows of the session, which lined up nicely with the 200 day moving average. Call it around 39, 40 or so. Multiple times yesterday and on Wednesday-- in fact saw buyers stepping up to the plate and picking up shares at that level. This is an important level for big institutions to hold. It's the buying that occurred last month is going to help support prices.

 J.D. DURKIN: Yeah. We had seen the S&P 500 above that level. So it was noteworthy we reached there this week. As we're having this conversation, we're at 3997. Is there a particular S&P 500 level, Bob, that you think members should be closely eyeing in the days ahead?

BOB LANG: Yeah. I've been watching that 200 day moving average, JD, of 3940 like a hawk. It's going to be huge. Really what can break it? I think some more bad news on inflation or the jobs data being a little bit hotter than expected next week. Below there, is support around the 3,900 level on the S&P 500. And then below there, 3802. And what does that mark? That is where we started 2023 at the 3802 level. If that fails, of course, the test of that December low, call it about 3720 or 3730 is likely to happen. And if that goes away, all hell breaks loose.

 J.D. DURKIN: And of course, we do get those jobs numbers one week from today. We will all be closely watching. Now by many across Wall Street are expecting an increase in volatility in March. What's the VIX telling you right now?

BOB LANG: Well, right now, it's very strange. VIX remains rather muted here. And since November, we've seen rises in volatility attacked by volatility sellers. And what does that mean? Big surges in volatility such as we had early in the week, this week, are sold. Basically, the offset for that is purchasing S&P 500 futures. So it's basically the trade is this sell volatility. Go long S&P futures, and it's kind of what happened yesterday after some news hit with President Bostic from the Atlanta Fed. Came out and said he's kind of in the camp of a 25 basis point. Not 50.

 Some of his other colleagues have been leaning towards a much more forceful or stronger rate hike at the next meeting on March 22nd. But it simply means as far as the VIX and the S&P 500 matters, it simply means that once news is released, and then a first reaction is felt. Like yesterday we had a reaction that came down early in with the news of some poor economic data.

 We see that first reaction from the sellers. There's no need to panic. And the dip buyers suddenly step in and take shares that were just sold. It's been happening since November 10th of last year. What was November 10th of last year? That was when the CPI report came in, and we saw that big huge move up in the S&P 500. Almost 6% rise on that particular day.

 When news hits, sellers sell. Buyers step in.

 J.D. DURKIN: Not to put you on the spot here. But do you happen to know is Bostic a voting member? I know he still pay attention. But as we've had with people like President Mester, and some others, they may not necessarily be voting members. But still when they speak, we pay close attention. Is that kind of what your sense is here?

 BOB LANG: That's true, JD. Bostic is not a voting member this year. He was last year. So he'll be back in the rotation in 2025. But he does have some influence. The Atlanta Fed does produce what's called a GDP Now Report. And every couple of days, they're updated with economic data. And basically, what is that? It's their forecast for what they think at the moment in time. It's called a now casting tool of what GDP is going to look like going forward.

 So they're actually forecasting nearly a 3% gain in this first quarter of 2023. Now you kind of have to take it with a grain of salt. President Bostic has been touting some of this data more recently, and saying that the economy is very strong. He's not really wrong. Of course, in fourth quarter of 2022, they were way off the numbers of their estimates as well too. So we do have to kind of take it with a grain of salt. But President Bostic does have some influence. Not as much as the other voters on the committee.

 J.D. DURKIN: Of course. When we talk about the importance of below trend growth coming from some of these Fed officials, those GDP numbers are still a bit higher, perhaps, than some would like to see. And a great point there about the work of the Atlanta Fed and that figure. Anything else you think that we may not be closely paying enough attention to that you're following, Mr. Lang, that you would want us to tune in to?

 BOB LANG: Well, JD, money flows are often challenging the month of March. And a lot of people forget that next month is payday for the government. It's April 15th of course, is when everybody's tax returns are due. And people have to raise money and funds to pay their taxes. And so we often see a lot of sloppy action in the month of March as people decide to start selling and trimming stocks. It would be an ideal time to do it after it's such a strong move up in January. And we really only came back a little bit, and gave back a little bit of those gains in February, February losses were about a little over 2%.

 So that often has made March a difficult month in the past. However, we should note it's almost a 14 year anniversary when markets bottomed in March of 2009. Everybody remembers that when the S&P 500 tagged the devil's number 666 on the S&P 500. That was the low printed after the great financial crisis. And we've been up ever since. Of course, we're up about almost 600% since then. Since that fatal day in March of 2009. But we always have to remember that. So certainly, again, March is always a tough month. But here was the moment back in 2009 where the markets hit. Bottom

J.D. DURKIN: Interesting note of historical context. And one that is welcomed here for our conversation. Since I jumped ahead to ask you a Fed question, let's go back to the Fed and end it with the Fed here, Bob. Since we last spoke, we've seen the minutes from the most recent FOMC meeting. We've heard from a series of Fed speakers. Can you give us your read on the current state of the Central Bank?

BOB LANG: I think the Fed remains pretty adamant about their fight against inflation. I think we really have to pay attention to their words along with their actions. And the actions of the Fed have been to be aggressive in fighting, and fighting inflation. I think the jury is out whether or not they're doing enough fast enough as well too. But I do see that the Fed funds futures are pricing in perhaps a 6% rate in September. It's a small amount. But still, it's out there. Some people are buying that argument that we could get Fed funds up to 6%.

Now currently, we're at 4.5%. That would be 150 basis points more of rate hikes. If they do it slowly, or they do it fast, it really doesn't much matter. We've had bonds selling off the last couple of weeks. We did see the tenure reach 4% on the yield as well as 5% on the two year yield. So bonds have been selling. In fact, another little note here, JD. I did look last night at the-- every Thursday night, they print what is the Fed's balance sheet. New Balance sheet figure after selling or buying bonds for the prior week.

So yesterday, that number came out. They sold another $42 billion worth of bonds yesterday, which is kind of in their plan with the QT, quantitative tightening, that they've been trying to do since the latter part of last summer. So that again, is another element that is going to be a tightening for the markets, along with the rate increases as well too. They're trying to accomplish this goal of snuffing out inflation.

We'll have to see over the next couple of months if it's working. We did have a rise in inflation last month. And we are expecting another big read in February when that comes out on March 14th and 15th. So we'll have to see how it goes. But I think, by and large, I think the Fed is doing the right thing right now.

 J.D. DURKIN: I appreciate the good faith reminder of QT. We talked so much about some of the other Fed's priorities. And it is worth reminding what the Fed had to do in the early days of the pandemic. And then to your point, what it has been doing since last summer more or less. Bob, thanks for a great conversation my friend. Happy Friday. Enjoy your weekend.

 BOB LANG: Have a great weekend. Great to be with you, JD.

J.D. DURKIN: You got it, man. All right, as a programming note, our next monthly members call will be live on Wednesday the 8th of March at 12:00 PM Eastern. And this time around, we'll be doing a deep dive into the rating system. As well as answering as many of your questions as possible. You won't want to miss it. But until then, Chris and I will be back on Monday morning to get ready for another trading week ahead. Have a great weekend. We'll see you then.