The end result of the week was green, but was there reason for it and does it tell us anything for this week?
Monday S&P 500 1.03% | NASDAQ 1.19%
Eleven major companies reported earnings, with one missing expectations. Much of the movement on Monday came as an extension of the Friday rally. A move based on the weaker than expected jobs report. Growth stocks outperformed as lower interest rates would carry a greater impact on their performance.
Tuesday S&P 500 0.13% | NASDAQ 0.10%
Twenty-three major companies reported earnings, with two missing expectations. Markets were little changed on the day. While stock stood steady, fixed income yields did slip on Tuesday. In general, this is a continuation of the last few days.
Wednesday S&P 500 0.00% | NASDAQ 0.18%
Fourteen major companies reported earnings, with three missing expectations. Mortgage rates slipped a little lower as rate hike expectations faded. The 10-year treasury rate, to the contrary, rose slightly on the day. This was a reversal of a recent trend. Not a notable enough increase to think that sentiment has changed.
Thursday S&P 500 0.51% | NASDAQ 0.27%
Eleven major companies reported earnings, with three missing expectations. Initial jobless claims came in higher than expected, but still at a muted level. The jobs data brought markets out of their two-day coma. Employment data is showing signs of softening. The hope is the Federal Reserve Board (FRB) will start getting the signals needed to start cutting rates.
Friday S&P 500 0.16% | NASDAQ 0.03%
Michigan Consumer Sentiment is projected to fall to 67.4 in May. If that holds true, it will be the lowest reading since August of 2023. This was a period where fears were high that a recession was on the horizon. The lack of earnings data and the weaker potential sentiment sent markets higher. Again, weakness is a signal of potential FRB moves.
Conclusion S&P 500 0.55% | NASDAQ 1.43%
Markets advanced for the week, albeit with little decisiveness. Market growth has all but stalled as more data is needed to entice investors. Last week’s message was clear from the FRB; they do not expect that their next move will be a hike. The focus is on the timing of a cut. Earnings data will slow down next week; however, inflation data will be in focus. It should give investors a better read on potential rate cuts later this year.
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Taper Tantrum 2.0 looks inevitable, but will it be as bad as last time?
Monday
The S&P 500 dug itself quite the hole on Monday morning. It spent the whole day climbing out of it and successfully closed 0.2% higher on the day. Strong earnings from Home Depot and Walmart buoyed markets.
Tuesday
Broadly, markets fell on Tuesday. Relinquishing all the effort from Monday’s trading activity. The S&P 500 fell 0.7%. Retail sales fell 1.1%, while a 0.7% increase was expected. The hit to consumption sent a shock through markets. The prevailing thought was, perhaps the re-opening trade will not last as long or as strong as many had expected.
Wednesday
After remaining stable most of the day, markets sold off in the closing hour of trading. The S&P 500 lost 0.85%. This was in response to Federal Reserve Board (FRB) minutes. They indicated tapering of their bond purchase program ($120B/month) may end sooner than most investors expected… Queue ‘Taper Tantrum 2.0’.
Thursday
Despite a volatile day, markets were little changed as the S&P 500 gained 0.1%. Initial jobless claims continue to impress as 348K jobs were lost. While 75% higher than pre-pandemic levels this is the lowest level since the beginning of the pandemic!
Friday
The markets bounced on Friday, as the S&P 500 rose 0.8% on the day. This did not erase the losses from the week but did manage to more than half those losses. The economic data and earnings calendars were light on Friday. This came more as a comeback bounce from the previous volatility. With all the concerns, the weekend news cycle was not one of them…
Conclusion
The last Taper Tantrum occurred in 2013 when the FRB decided to start trimming its bond purchase program ahead of rate increases in 2015. This is a form of monetary tightening. When the FRB buys bonds they go on their balance sheet and the money they paid goes into the economy (currently $120B/month). As they slow those purchases, less money is being infused into the economy. This time the FRB is attempting to telegraph the decision to taper bond buying as to not shock bond markets. These attempts will help, but regardless of their efforts markets will still react adversely to a tightening of monetary policy.
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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.