The Standard and Poors 500 index (SPX) closed yesterday at 3971, up 22 points on the day or +0.6%. However, SPX opened the week at 3917 for a weekly gain of 1.4%. SPX found support at the 200 dma on Wednesday and held above that support the balance of the week. Trading volume steadily declined this week, running slightly above and then below the 50-day moving average (dma) as the week progressed.

VIX, the volatility index for the S&P 500 options, closed yesterday at 21.7%, up 0.9 points or +4%. VIX opened the week at 27.8%, declined significantly on Monday and Tuesday, but then traded sideways the rest of the week.

I track the Russell 2000 index with the IWM ETF, which closed yesterday at 171.8, up 1.5 points or 0.9% on the day but down 0.3% for the week. IWM is about ten points below its 200 dma and is about fifteen points below its 50 dma. This extremely weak Russell 2000 is the most negative sign of all for this market.

The NASDAQ Composite index closed at 11,824 yesterday, gaining 37 points or +0.3%. NASDAQ opened the week at 11,614 leading to a 1.8% gain for the week. NASDAQ remains well above both its 50 dma and 200 dma. NASDAQ’s trading volume opened below the 50 dma on Monday and continued to decline as the week wore on.

The big news this week centered on the FOMC meeting and its announcement on Wednesday to raise the federal discount rate by 20 basis points, resulting in a federal funds rate of 4.75% - 5.00%. In the press conference, Powell emphasized that the banking system is sound, but that inflation remains a problem and the FOMC will continue to pursue its goal of 2% annual inflation. Committee members predicted one more rate hike this year on the so-called “dot map” of economic projections.

The FOMC finds itself in a tough spot. If it truly is committed to reducing inflation to their stated goal of 2%, its primary tool is to continue to raise interest rates. However higher rates are stressing the banking system and continue to threaten a severe recession. The CPI and PPI reports last week gave us hope that the Fed’s rate hikes were having a positive effect on inflation. But we also learned that the rising interest rates were at the heart of last week’s bank failures. The Fed is, indeed, in a tough spot.

Remember that your brokerage accounts are insured for double the amount of FDIC insurance on bank accounts. And the brokerages are just sweeping those funds in and out of money market funds – much safer than the banks.

Be careful. Stay largely in cash.