The Standard and Poors 500 index (SPX) closed Friday at 3970, down 42 points on the day or -1.1%. SPX opened the week at 4052 for a weekly loss of 2.0%. Trading volume ran below the 50-day moving average (dma) all week.

VIX, the volatility index for the S&P 500 options, closed Friday at 21.3% after spiking as high as 22.9%. VIX opened the week at 21.8% with minimal change for the holiday shortened week. That was surprising given the weakness of the market.

I track the Russell 2000 index with the IWM ETF, which closed Friday at 187.51, down 1.8 points or 0.9% on the day and down 1.7% for the week. IWM stood out last week, finding support at the failed rally highs of November and December. That support level was broken yesterday.

The NASDAQ Composite index closed at 11,395 yesterday with a loss of 195 points or -1.7%. NASDAQ found support at 11,500 on Tuesday but solidly broke through that level on Friday. NASDAQ’s trading volume ran below the 50 dma and steadily declined all week.

Last week, comments from two FOMC members and strong numbers from the CPI and PPI reports appeared to support the prospect that more rate hikes may be required to get inflation to subside. The PCE price index report this week reinforced that fear and led to more selling.
 
The S&P 500 index fell 2.0% this week; NASDAQ declined 2.1% and the Russell 2000 dropped 1.7%. Traders were closely watching the support levels established in December by the failed recovery highs. SPX broke that level last week; the Russell 2000 index broke down on Tuesday and NASDAQ broke down on Friday.
 
The market is selling off because it fears continued rate increases by the Fed will drive the economy into recession, the often cited “hard landing”. The next Fed announcement is scheduled for 3/22 and all evidence suggests another rate increase. The only debate is the amount. The March FOMC announcement will most likely trigger another sharp market decline. Is this month’s market decline the result of the large institutional players pulling back and hedging their portfolios in preparation for that announcement? Using the S&P 500 as our market proxy, a decline of 12% from Friday’s close would return to the lows around 3500 from last October.
 
That analysis only leaves us with questions: Will February give back January’s gains? Is the bear market that began in early 2022 beginning a new leg lower? The best course of action is to stay largely in cash and focus on long term 
ultra-conservative positions.