The question on many investors' minds is whether the Fed will back off at next week's meeting or risk further financial contagion and continue its interest rate hikes.

Fed Chair Jerome Powell's two-day testimony in front of the House and the Senate this week was decidedly hawkish. In retrospect, there was nothing new in his statements, but for some reason the markets were willing to listen. 

Many equity players believe that the next batch of economic data points is going to show lower inflation, slower economic growth, and a weaker job market. There is a whiff of ‘hopeification’ in that scenario to be sure.

Overall sentiment in the markets has turned cautious and for some downright bearish once again after the January rally in stocks. Recession fears are once again taking center stage for many although there is still not enough evidence to prove it definitively.

I was expecting that January's bounce in the averages would reverse in February. So far, I have been wrong. I did provide some caveats. For example, I recognized that my forecast had become the consensus view, and that made me uncomfortable.

Now that inflation appears to be coming down, a bullish case is building that says we might get away with just a mild (as opposed to a full-fledged) recession. 

Following a year-end sell-off for tax purposes, known as the  "January Effect," the stocks that rose the most over the last two weeks were those that were sold off the most in 2022.

Both wages and jobs data thus far seem unaffected by higher interest rates and the Fed's attempt to slow the economy. That may change soon since we are seeing more and more companies announce layoffs and other cost-cutting actions.

Investors are so skittish that every data point is an excuse to run markets up or down. As I have warned readers in the past, selecting one or two data points and extrapolating a trend from them is a dangerous game, but that is exactly what the markets are doing.

Could the S&P500 climb higher? It could, says columnist Bill Schmick, but based on recent market action, we seem closer to a top, not a bottom.