Following hotter-than-expected inflation data last week, the market narrative has returned to one that could see the Federal Reserve step up its efforts to bring inflation back to its stated 2% target. That has also renewed concern such moves could ultimately tip the economy into a recession even though the current reading from the Atlanta Fed GDPNow model is 2.5% for the current quarter.

Our take is the Fed will remain data dependent, but the stock market is likely to remain volatile day to day, moving based on the latest economic data and how it fits, or doesn’t, into this evolving market narrative.

At the same time, we acknowledge we are bumping up against technical resistance in the market, which more than likely means we could pick up shares in several portfolio companies, including Chipotle (CMG) , Clear Secure (YOU) , AMN Healthcare (AMN) , the Energy Select Sector SPRD Fund (XLE) , Vulcan Materials (VMC) , with better prices in the coming days.

That renewed market narrative will have us as well as everyone else combing through today’s flash February PMI data for Japan, the eurozone, the UK, and the US with a fine-tooth comb, reviewing both manufacturing and services data but also trends on new orders, employment, and inflation. Based on those reports for Japan, the Eurozone, and the UK, the Manufacturing economy continued to contract in February, even as the Services side of those economies continued to expand.

At 9:45 am ET, S&P Global (SPGI) will publish its flash February data for the US, which is expected to see continued contraction for both Manufacturing and Services. Following the January Consumer and Producer Price indexes last week, what the flash February data says about inflation has the potential to reframe the course of Fed monetary policy.

Later in the week, the January Personal Income & Spending report will show to what degree consumers dipped into their savings to generate the recently reported and far stronger-than-expected January Retail Sales activity. That data also brings one of the Fed’s preferred inflation metrics, the Personal Consumption Expenditure (PCE) Price Index. Should it join recent inflation data in the form of the January Consumer and Producer Price indexes and come in hotter than expected we could see fed fund futures expectations move even higher, likely placing renewed pressure on the stock market.

We are also seeing renewed geopolitical tensions between the US and China. Secretary of State Antony J. Blinken held what is being called a confrontational meeting with his Chinese counterpart over the long weekend in Munich. Per reports, Blinken warned Chinese official Wang Yi that the flight of a Chinese surveillance balloon across the United States, “must never happen again.” Blinken also cautioned Beijing against providing “material support” to Russia’s war in Ukraine, a prospect he later suggested China was now “strongly” considering.

On a more positive note, defense stocks including our own Lockheed Martin (LMT) could see a boost today following the White House announcing $450 million to provide assistance to Ukraine. It is expected to include air defense radars, Javelin anti-armor systems offered by Lockheed and Raytheon (RTX) , and artillery ammunition. Long-range weapons were also discussed, though there was no mention of Lockheed Martin F-16 fighter jets, which would upgrade Ukraine’s firepower, but could also escalate the situation with the ability to strike deep into Russia.

While we are not involved in the shares of Meta Platforms (META) , the company will mirror Twitter with a monthly subscription service called Meta Verified that will allow users to verify their accounts using a government ID. The subscription bundle for Instagram and Facebook will be launched later this week, with prices starting at $11.99/month on the web or $14.99/month on iOS and Android.

While META bulls will tout this and the potential for a recurring revenue stream, we’ll need to see adoption rates before becoming convinced. Stepping back, the move also raises questions over overall subscription spending by consumers and their ability to sustain them, especially given recent price increases.

We also have earnings today from Walmart (WMT) and Home Depot (HD) this morning, and from Palo Alto Networks (PAWN) this afternoon.


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