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 on inflation data last week, recovering ground late. What caused this swing?
Monday
Monday’s activity was very much still a reaction to the jobs report released the prior Friday. For most of the day markets floated near the highs only to shed value late. Focus shifted to potential supply constraints as a result of the colonial pipeline (CP) ransomware situation. With that shift in focus, the S&P 500 ended the day down 1%.
Tuesday
The S&P 500 shed another .87% on Tuesday. Job openings increased to 8.1M and the CP pipeline remained out of commission. That closure dominated momentum on the markets. Energy prices soared, but equities as a whole struggled.
Wednesday
Inflation data out Wednesday morning roiled the markets! Markets have been pricing in higher inflation as the re-opening trade has been under way for several months now. The repricing continued Wednesday. Core Consumer Prices (Inflation proxy) jumped from 1.6% in March to 3.0% in April. The strong reading raised concerns that we are about to undergo a wave of high inflation. The S&P 500 fell 2.14%, however the NASDAQ led the losses as 2.65%.
Thursday
Initial jobless claims fell to a pandemic low of 473K. This upbeat reading seemed to allow calmer heads to prevail on Thursday as markets staged a rebound.
Friday
In a move that was clearly ‘bad news is good news,’ weak retail sales allowed markets to close higher. The weaker reading encouraged investors that perhaps April’s inflation reading will not be the norm going forward.
Conclusion
There is much focus on inflation right now. Understandably so, supply lines are choked off, employees are hard to come by, and people are starting to get out and spend money. From the semiconductor shortages, a depleted rental fleet from a sell off during the pandemic, to lumber bottleneck. Every where you turn there is evidence of price hikes. All that said, the inflation concerns do not appear to be long term. As workers come back, supply constraints will improve, and these price increases will likely prove temporary. A sign of prices adapting to current circumstances rather than long term inflation increases.
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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.