Interest Rates

The Federal Reserve has tempered its interest rate increases in pursuit of a "soft landing." We've analyzed past instances where the Fed has paused rate hikes, as depicted in the red highlights on the chart below. From our analysis of the two previous occasions, we observe that the market initially reacts positively and surges to new record highs. However, these gains tend to be short-lived, and sharp declines of 55% and 34% were experienced in 2009 and 2020. Will we witness a similar pattern this time?

The next Consumer Price Index (CPI) print will be available tomorrow, Tuesday 14th February. If the downward trend continues we can expect rates to remain static.

Market Indices

Last week, the Nasdaq-100 (QQQ), S&P 500 (SPY), Dow Jones Industrial Average (DIA), and Russell 2000 (IWM) all witnessed different degrees of pullbacks. The Russell 2000, which tracks small-cap stocks, experienced the steepest decrease at -3.39%. The Nasdaq suffered a reversal of 2%. Meanwhile, the SPY saw a drop of more than 1%, while the Dow remained flat for the week.

S&P 500 - Technical Analysis

From the viewpoint of a technical analyst, the S&P 500 appears to be in a robust state. On January 17th, it formed a "golden cross," where the 50-day Simple Moving Average crossed over the 200-day Simple Moving Average. During the previous golden cross in July 2020, the S&P 500 experienced a surge of more than 50% to new all-time highs. However, it is important to note that the current market conditions are vastly different from those of the Covid era, as interest rates are no longer near zero and the Federal Reserve's monetary stimulus is not as prevalent. While a repeat of the 2020/2021 performance is not likely, these technical indicators are still noteworthy.

Microsoft-backed OpenAi vs Google

If you have not been hiding in the wilderness, you probably heard something about ChatGPT. Developed by OpenAI, ChatGPT is a language model that uses deep learning to generate human-like text. It has taken the world by storm. ChatGPT crossed 1 million users just one week after its launch in November 2022. To put that into perspective, Instagram took 2 months to achieve the same feat. ChatGPT is reported to have over 13 million daily active users as of today. Microsoft invested $10B in OpenAI, acquiring 46% of the business.

Google has held a monopoly on search since its inception. Microsoft just announced that they will incorporate the technology powering ChatGPT into their Bing search engine and Edge browser. This development will impact Google's dominance over search. Google responded last week with the announcement of Bard AI. During a live demo of the product, the application gave an incorrect answer to a question. Google's share price dropped dramatically on Tuesday and Wednesday, wiping $177 billion off its market cap last week. This is equivalent to the combined market cap of the smallest 580 publically traded stocks in our Finance universe.