Markets grew for the week for the first time in a month. Is it a reason to celebrate or a breather in the pullback?
Monday S&P 500 0.87% | NASDAQ 1.11%
Nine major companies reported earnings, with two missing expectations. Equities jumped to open the week. Outside of earnings data there was not much to support the rally. It was likely a jump on three consecutive weeks of down market, creating better by opportunities.
Tuesday S&P 500 1.20% | NASDAQ 1.59%
35 major companies reported earnings, with five missing expectations. Housing data came in better than expected. The heavy earnings data drove markets higher on Tuesday, pun intended. GM (GM) and Tesla (TSLA) were among reporters that helped propel markets.
Wednesday S&P 500 0.02% | NASDAQ 0.10%
40 major companies reported earnings, with six missing expectations. Core durable goods orders came in lighter than expected. Strong earnings data was counter-balanced by higher rate expectations. This left markets fairly unchanged.
Thursday S&P 500 0.46% | NASDAQ 0.64%
60 major companies reported earnings, with 13 missing expectations. GDP grew at a much slower pace than expected(1.6% vs 2.5%). Unemployment data continued to show strength. GDP and forward guidance from Meta (META) spooked markets early. They managed to climb halfway out of the hole that was dug as the earnings flowed in throughout the day.
Friday S&P 500 1.02% | NASDAQ 2.03%
13 major companies reported earnings, with five missing expectations. Consumer sentiment softened in April. Core Personal Consumption Expenditures (PCE) held steady at 2.8% in March. This is the Federal Reserve Board’s (FRB) preferred gauge of inflation. Between PCE data and earnings from Alphabet (GOOG) and Microsoft (MSFT) markets surged on the day.
Conclusion S&P 500 2.67% | NASDAQ 4.23%
The markets experienced a strong bounce back this last week in comparison to the last three weeks. Do not be fooled. Markets have a way to go to recapture highs as the growth did not even recover from the prior week. This indicates that there is room for markets to continue the run up as earnings season wears on. There are major hurdles this coming week with the FRB meeting, Jobs data, and Apple (AAPL) reports earnings.
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Taper Tantrum 2.0 looks inevitable, but will it be as bad as last time?
Monday
The S&P 500 dug itself quite the hole on Monday morning. It spent the whole day climbing out of it and successfully closed 0.2% higher on the day. Strong earnings from Home Depot and Walmart buoyed markets.
Tuesday
Broadly, markets fell on Tuesday. Relinquishing all the effort from Monday’s trading activity. The S&P 500 fell 0.7%. Retail sales fell 1.1%, while a 0.7% increase was expected. The hit to consumption sent a shock through markets. The prevailing thought was, perhaps the re-opening trade will not last as long or as strong as many had expected.
Wednesday
After remaining stable most of the day, markets sold off in the closing hour of trading. The S&P 500 lost 0.85%. This was in response to Federal Reserve Board (FRB) minutes. They indicated tapering of their bond purchase program ($120B/month) may end sooner than most investors expected… Queue ‘Taper Tantrum 2.0’.
Thursday
Despite a volatile day, markets were little changed as the S&P 500 gained 0.1%. Initial jobless claims continue to impress as 348K jobs were lost. While 75% higher than pre-pandemic levels this is the lowest level since the beginning of the pandemic!
Friday
The markets bounced on Friday, as the S&P 500 rose 0.8% on the day. This did not erase the losses from the week but did manage to more than half those losses. The economic data and earnings calendars were light on Friday. This came more as a comeback bounce from the previous volatility. With all the concerns, the weekend news cycle was not one of them…
Conclusion
The last Taper Tantrum occurred in 2013 when the FRB decided to start trimming its bond purchase program ahead of rate increases in 2015. This is a form of monetary tightening. When the FRB buys bonds they go on their balance sheet and the money they paid goes into the economy (currently $120B/month). As they slow those purchases, less money is being infused into the economy. This time the FRB is attempting to telegraph the decision to taper bond buying as to not shock bond markets. These attempts will help, but regardless of their efforts markets will still react adversely to a tightening of monetary policy.
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Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.