More to Come? | May 28, 2021 | FFS

Markets sold consistently across the week. Is there more red to expect in coming weeks?

Monday S&P 500 1.20% | NASDAQ 1.79%

Happy Tax Day! Retail sales expanded more than expected in March. Three major companies reported earnings, all three met expectations, all of which were financials. This was not surprising as financials usually head up earnings season. They also give us a good indication of how earnings season should go. Retail sales, however, took center stage as a strong consumer reduces the need for Federal Reserve Board (FRB) rate cuts. This caused an outsized move downward as investors anticipate less stimulus for 2024.

Tuesday S&P 500 0.21% | NASDAQ 0.12%

Housing data for March came in weaker than market expectation. Ten major companies reported earnings, with two missing expectations. Although mild, the losses continued. FRB Chair Powell indicated that inflation’s recent strength does not give the board confidence to start easing policy.

Wednesday S&P 500 0.58% | NASDAQ 1.15%

11 major companies reported earnings on the day, with three missing expectations. Focus was squarely on earnings as there was little economic data on the day. Tech stocks took a hit as AI chip orders for a specific company did not meet expectations. As would be expected this hit the tech heavy NASDAQ harder than the S&P 500.

Thursday S&P 500 0.22% | NASDAQ 0.52%

Initial unemployment claims remain benign. Existing home sales also slowed in March. 11 major companies reported earnings on the day, with one missing expectations. Markets were down for the day, but in a less dramatic fashion. Robust employment data typically is not favorable information when hoping for an FRB rate cut (as investors are).

Friday S&P 500 0.88% | NASDAQ 2.05%

Six major companies reported earnings on the day, with one missing expectations. NASDAQ led the way lower as Tech and communications got hit hardest. The best performers on the day were defensives, like utilities, healthcare, staples, and also financials.

Conclusion S&P 500 3.05% | NASDAQ 5.52%

The week was bloody. There was not a single up day for the S&P 500 or the NASDAQ Composite. The moves were not founded in fundamental data, as earnings did well. Some forward guidance shows warning of slowing revenues throughout the year, but that is normal for the last two years. Economic data, which signals the economy is doing well, has actually pushed stocks lower. The stronger the economy, the less likely the FRB is to act in reducing rates. The sell-off has extended to approximately 6%. It may take a breather in the coming days but expect that we are not done.

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After three weeks of loss, the S&P 500 eked out a gain for the week. Is there more to come?

Monday

Markets surged ahead on Monday attempting to make up ground from the last few weeks of declines. The S&P 500 rose .95% on the day. The Nasdaq led the way higher as it rose 1.4%.

Tuesday

Housing ruled the day for the markets on Tuesday. Markets ended the day mildly lower than they began. Elevated home prices (13.9% increase) and reduced new home sales (-5.9%) contributed largely to sentiment on the day.

Wednesday

The Russell 2000 (small cap stocks) led the way in gains for the day (2%). The major indices rose mildly for the day as it was a light economic calendar leading up to Thursday’s jobs data.

Thursday

Economic data was strong on Thursday, but the market reaction was tepid. Core durable goods increased more than expected and last months figure was revised to double the previous estimate. Weekly initial jobless claims data improved and remains under 500K for the fourth week in a row. It reached a post pandemic low of 404K this week.

Friday

Core Personal Consumption Expenditures (PCE) index rose to 3.1% YoY in April. This is the Federal Reserve Board’s (FRB) preferred measure of inflation. It gives us insight into how the FRB may react with rates. Michigan Consumer Sentiment fell to 82.9 for May. These data points led the S&P 500 higher for the day by 0.08%.

Conclusion

The S&P 500 staged a bit of a rebound this week. Between favorable jobs data, durable goods data, and a housing market that is seeing plenty of demand the reflation trade is well under way. The difficult thing will be for it to live up to expectations as it unfolds. This week, however, it did as the S&P 500 managed to gain 48.25 points and is up 11.93% year to date.