Ominous clouds hang over the stock market, and investors need to tread carefully. As we move into March, it’s important to prepare for more volatility driven by the Federal Reserve and international conflicts. It’s also important to keep your eyes peeled for opportunities to buy great stocks at a discount. Here are my three biggest predictions for March.
1. The market will lose support from earnings
Earnings season is just about over, which is bad news for the stock market. So far, 95% of the S&P 500 companies have reported their results for the fourth quarter. More than three-quarters of them exceeded Wall Street’s expectations for sales and profits. The S&P 500’s average 30% earnings growth rate has been nearly 8% higher than analyst estimates.
Importantly, consumer discretionary and technology stocks were particularly strong. These sectors tend to be volatile during turbulent markets, so these positive results probably created a lot of stability.
People are also reading…
Image source: Getty Images.
Unfortunately, there won’t be much news about corporate fundamentals in March. In lieu of that, stocks will be moving due to macroeconomic and capital market trends. That points to rocky times ahead for investors.
Interest rates are rising, the conflict in Ukraine is creating major geopolitical tension, and investors are pulling capital from the stock market in favor of lower-risk asset classes. Those factors all tend to hurt stocks, and none of them will get fully resolved in a few weeks. Economic data such as inflation, unemployment, and sentiment ratings will receive extra attention. Any of that news could go either way, but extra volatility is likely.
Even a fantastic earnings season wasn’t enough to propel major indexes much higher. The market is reacting more extremely to bad news than to good news. Poor earnings reports are being punished in a larger magnitude than good earnings reports are being rewarded.
That’s strong evidence of ongoing downward pressure in the market. The good news from earnings season is behind us, and anything else that’s supporting stock prices is flimsy at best.
2. Updates from the Fed will be crucial
The Federal Reserve Open Market Committee (FOMC) is scheduled to meet again on March 15 and 16, and investors will be tuning into the press conference for information. Rate hikes are a hot topic as the monetary authorities struggle to contain inflation. Any indication that interest rates will rise more quickly than expected is likely to push the market downward. If the Fed’s commentary suggests that rate hikes will be less extreme than …….
