Markets grew for the week for the first time in a month. Is it a reason to celebrate or a breather in the pullback?
Monday S&P 500 0.87% | NASDAQ 1.11%
Nine major companies reported earnings, with two missing expectations. Equities jumped to open the week. Outside of earnings data there was not much to support the rally. It was likely a jump on three consecutive weeks of down market, creating better by opportunities.
Tuesday S&P 500 1.20% | NASDAQ 1.59%
35 major companies reported earnings, with five missing expectations. Housing data came in better than expected. The heavy earnings data drove markets higher on Tuesday, pun intended. GM (GM) and Tesla (TSLA) were among reporters that helped propel markets.
Wednesday S&P 500 0.02% | NASDAQ 0.10%
40 major companies reported earnings, with six missing expectations. Core durable goods orders came in lighter than expected. Strong earnings data was counter-balanced by higher rate expectations. This left markets fairly unchanged.
Thursday S&P 500 0.46% | NASDAQ 0.64%
60 major companies reported earnings, with 13 missing expectations. GDP grew at a much slower pace than expected(1.6% vs 2.5%). Unemployment data continued to show strength. GDP and forward guidance from Meta (META) spooked markets early. They managed to climb halfway out of the hole that was dug as the earnings flowed in throughout the day.
Friday S&P 500 1.02% | NASDAQ 2.03%
13 major companies reported earnings, with five missing expectations. Consumer sentiment softened in April. Core Personal Consumption Expenditures (PCE) held steady at 2.8% in March. This is the Federal Reserve Board’s (FRB) preferred gauge of inflation. Between PCE data and earnings from Alphabet (GOOG) and Microsoft (MSFT) markets surged on the day.
Conclusion S&P 500 2.67% | NASDAQ 4.23%
The markets experienced a strong bounce back this last week in comparison to the last three weeks. Do not be fooled. Markets have a way to go to recapture highs as the growth did not even recover from the prior week. This indicates that there is room for markets to continue the run up as earnings season wears on. There are major hurdles this coming week with the FRB meeting, Jobs data, and Apple (AAPL) reports earnings.
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Headlines included Omicron, Jobs, Manufacturing, and Services PMI. So, what led the charge lower and why?
Monday
The S&P 500 jumped to open the week, rising 1.32%. This was a bounce day after a strong move lower the previous Friday. The bounce is not surprising as the move lower was based on information not formerly available (Omicron). Light market trade on Friday from the holiday on Thursday exasperated the situation.
Tuesday
Selling pressures resumed on Tuesday as all the gains from Monday were reversed and then some. The S&P 500 fell 1.90% on the day. Federal Reserve Board (FRB) Chair Powell indicated that inflation was proving more resilient than anticipated while testifying on Capitol Hill. This gave markets moment for pause. This is an indication that we will likely see rate hikes (monetary tightening) quicker than anticipated.
Wednesday
Wednesday started strong as investors responded favorably to ISM Manufacturing data. That momentum quickly faded, however, as the first case of Omicron was detected in the US. The S&P 500 gave back another 1.18%.
Thursday
Another bounce came on Thursday as the markets faded Omicron concerns. Initial jobless claims continued their run at lower levels as only 222K initial claims were filed. The S&P 500 rose 1.42%.
Friday
Happy Jobs Friday! It was a mixed report. Private nonfarm employment was a hard miss, coming in at 235K when 530K were expected. The rate of unemployment fell, however to 4.2%, even as participation rose to 61.8%. Largely overlooked was the fact that ISM Services PMI rose to 69.1 for November. Services make up over 80% of our economic activity, this data carries strong meaning. For perspective, this is the highest reading dating back to the start of tracking in 1997. The pandemic low (April) was 41.8!
Conclusion
Interestingly, the jobs data released on Friday seemed bleak as a result of seasonal adjustments. In all actuality, 778K jobs were added, but, that is adjusted down in comparison to last year’s figures. Aside from a miss on wage growth (which actually signals less inflationary pressure), the jobs report was quite favorable:
- 778K jobs added
- 4.2% unemployment rate, a decrease
- 61.8% participation, an increase
- 7.8% Underemployment rate, a decrease
- 4.8% YoY Earnings increase, equal
So why the fall on markets? The FRB has a dual mandate, inflation of approximately 2% and full employment. Full employment has historically been deemed to occur at around 4%, however inflation is running hot at 5% (PCE). Investors see the job market as stable enough that the FRB will be turning their attention to inflation. This happens by the FRB taking away accommodative policies such as bond buying programs. It then moves to them tightening monetary policy by raising interest rates and selling bonds on their balance sheets. All of which signals contained economic growth expectations in the near term.
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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.