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 flashed a recession signal last week. Is the party over or do we still have room to grow?
Monday S&P 500 0.71% | NASDAQ 1.31%
The markets started the day and week in the green, but quickly faded as the 5-year and 30-year yields inverted. This means you could get more interest from a 5-year bond than a 30-year bond. This leads to fears of a recession. The key rate that would forward project a recession is the 2-year vs the 10-year (foreshadow). Markets bounced back late to end in the green as investor sentiment continues to support market valuations.
Tuesday S&P 500 1.23% | NASDAQ 1.84%
Markets rose, but it was in spite of some poor performance out of key categories. The Energy complex struggled as the shutdown of Shanghai, due to COVID testing, is taking a toll on demand. Optimism over a stock split in TSLA strengthened sentiment late in the day.
Wednesday S&P 500 0.63% | NASDAQ 1.21%
Russian demand for energy payments in rubles caused concern as sanctions have attempted to force a reduction of ruble use. Additionally, a classic signal for a future recession (6 to 24 months out) triggered. The 2-year vs the 10-year treasury rates inverted. The meaning can be seen that rate of growth beyond 2 years will be lower than current growth rates.
Thursday S&P 500 1.57% | NASDAQ 1.54%
Oil prices slid as another round of Ukraine/Russia talks gets underway. The US also announced a release of 1M barrels of oil per day from strategic reserves. Initial jobless claims rose last week and was an ominous foreshadowing of tomorrow’s job report.
Friday S&P 500 0.34% | NASDAQ 0.29%
Jobs Friday! Job data impressed as the unemployment rate fell to 3.6% and 431K nonfarm payrolls were added in March. The all-important participation rate moved a notch higher to 62.4%. So why didn’t the markets soar? The strength of the job market means the FRB is more likely to do a 0.50% rate hike in May. This pushed the 2-year yield over the 10-year yield again. As a classic sign of a coming recession (within the next 2 years) markets took the signal hard.
Conclusion S&P 500 0.06% | NASDAQ 0.65%
Though the intra-week volatility was elevated, markets ended the week slightly unchanged. The Nasdaq edged higher than the S&P 500 as bonds flashed a classic recession signal for the future. Inversion of the yield curve happens more than just leading into a recession; however, it precedes every recession. The last two times it has happened, the S&P 500 has grown pretty substantially for the 12 months. So, even if the signal is right, the party is not quite over. Think of it as last call…
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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
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.