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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Markets shed weight for the first week in four. Is there reason to be concerned or is it transitory…
Monday
Markets opened the week on a strong note as the S&P 500 rose 0.4%. In fact, all major equity indices rose. Expectations for companies to deliver on Q2 earnings are high. The season gets underway in earnest this week.
Tuesday
The S&P 500 lost what ground in gained on Monday, on Tuesday. The Consumer Price Index (CPI), a proxy for inflation, expanded more than expected. The core figure (which removes fuel and food) increased 4.5% over the last 12 months. Fears of persistent inflation gripped the markets Tuesday.
Wednesday
Inflation concerns persisted as the S&P 500 gained, but small cap stocks (the darling of the re-opening trade) faded. Federal Reserve Board (FRB) Chair Powell was testifying before congress and did his best to assuage investors’ fears about inflation.
Thursday
Markets lost on Thursday as the FRB made mention that it may increase interest rates sooner than investors are anticipating. The S&P and the NASDAQ, both lost as the Dow gained.
Friday
The S&P 500 lost ground on Friday (0.8%) as concerns rose regarding the stability of this new expansion. Michigan Consumer Sentiment was projected to fall 5 points, bringing it down to a level not seen since February. The hesitation as well as rising inflation concerns are looking like they could curb consumers. Less consumption, means less profits…
Conclusion
Transitory, transitory, transitory… The word of the year, as the FRB is messaging that they see the current inflationary pressures as… transitory. They expect it to stay confined to the next 12 months or so. The persistence of COVID globally, may derail ‘transitory’. The US is largely an importer of goods. Even if we get a grip on COVID domestically, international struggles will hamper supply lines and cause inflation to persist.
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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.