Volatility Again...| March 4, 2022 - Financial Future Services

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 moved lower last week, again. Is volatility telling us anything about what to expect for the next month?

Monday

We experienced a very modest day of movement on Monday. A welcomed change from the headline risk that has been accompanied with every weekend as of late. The S&P 500 lost 10 points or 0.24%.

Tuesday

Volatility picked back up on Tuesday. The implications from sanctions on Russia posed a difficult pill for markets to swallow. Early, the S&P 500 fell more than the NASDAQ as markets were pricing in a less hawkish Federal Reserve Board (FRB). The S&P 500 ended up falling 1.63%, while the NASDAQ lost 1.69%.

Wednesday

A full reversal was in order Wednesday. The S&P 500 recovered all the losses from Tuesday as it rose 1.80%. NASDAQ lagged, as has been the standard as of late, rising 1.62%. The FRB chair, Jerome Powell, testified before congress on Wednesday. During which he made it clear that a 0.25% rate hike is more likely for an opening move, not 0.50%. This was cheered by markets as a less hawkish stance than expected in recent weeks. At the same time, he also stated that consecutive hikes should be seen as normal. It felt as though the FRB chair was trying to send a message to expect that later this year.

Thursday

Markets rose on Thursday. The S&P 500 rose 1.33% on the day while the NASDAQ lagged, rising 0.04%. This is a signal that strong jobs data is expected for tomorrow. Strong data would increase the hawkishness of the FRB. This is because it would make it easier for the FRB to hike interest rates.

Friday

Happy Jobs Friday! Jobs data did not disappoint as the unemployment rate fell to 3.8% and 678K nonfarm jobs were added. The participation rate reached a pandemic high of 62.3. This is a signal that more workers are optimistic about their job prospects. The strong jobs showing is a signal that the FRB will be more concerned with inflation in their coming meeting. This makes a rate hike all but a certainty for March. With all that good news, we were rewarded with a down market. The tension in Ukraine after a standoff at a nuclear power plant was a bit much for markets to handle. Additionally, the fears of a rate hike’s impact on earnings took a toll on stock prices. The S&P 500 ended up falling 0.79% on the day. The NASDAQ sold off 1.66%.

Conclusion

The week was not great for markets as the S&P 500 lost 1.27% and the NASDAQ lost 2.78%. VIX started the year at 16.60 and has climbed as high as 33.32, which was this past Tuesday. Market volatility over the next month is now expected to be around 1.6% daily. That volatility could be reflected in gains or losses but given geo-political risks at play the latter is likely.