Telegraphed Target | August 27, 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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The Federal Reserve is telegraphing their moves. Does this put a target on the back of markets?

Monday

Markets opened the week in the green. The S&P 500 continued from Fridays gains and rose 0.85% on the day. This was in spite of softening PMI data. Specifically concerning was the fall in services data as that makes up the majority of economic activity in the US. The fall, however, was to a level that is still expansionary. It just means we should see a lower level of GDP in the 3^rd quarter. Good news on the day included a rise in existing home sales, by 120K units for the month.

Tuesday

The S&P 500 rose marginally on Tuesday. Economic data was fairly light and the focus was on Federal Reserve Board (FRB) Chair Powell’s speech coming on Thursday. New home sales did increase from the prior month by 1.0% (July), missing expectations of a 3% increase.

Wednesday

In another muted day of trading, The S&P 500 was up 0.25%. Again, focus intensified on tomorrow’s Jackson Hole Symposium speech by the FRB. Core durable goods orders, a good indicator of future demand, rose 0.7% (July). All week, FRB members have been sounding the call for tapering of the FRB bond buying program. This has kept what would have been a strong week, rather tepid.

Thursday

The S&P 500 fell 0.65% on Thursday. This came as the FRB Chair confirmed concerns regarding tapering. They do intend to begin tapering later this year. Assuming the economy maintains I’s trajectory of growth.

Friday

In a re-occurring theme, the S&P 500 made back all of Thursdays losses and then some on Friday. It rose nearly 1%. Core PCE pricing was released Friday showing that inflation has increased 3.6% YoY (July). The black mark on the day was that consumer sentiment preliminary reports is reading at 70.3. A large drop from last month. This is concerning for future spending expectations.

Conclusion

The S&P 500 rose 1.52% in a week where the FRB confirmed tapering of bond purchases will occur later this year. The telegraphed nature of Chair Powell’s behavior should allow market shocks from FRB activity to remain muted. A major part of his statement was that tapering is contingent on continued economic strength, which appears to be fading. A tightening FRB is unlikely in an environment with waning economic production.