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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The S&P 500 shed 1.94% on the week as Omicron took center stage. Will Omicron steal Santa’s Thunder?
Monday
Markets opened the week in the red. This came as the first true negative news broke on Omicron over the weekend. There are now studies showing that second dose treatments of MRNA vaccines are not very effective on Omicron. Additionally, the UK announced their first fatality of an Omicron infected individual.
Tuesday
Inflation, inflation, inflation… Omicron, omicron, omicron… Markets dove on Tuesday as the Producer Price Index rose more than expected. The fear being that companies will have to pass those price increases through to consumers or realize weaker profits. Either scenario is bad. Omicron continues to make noise as its high transmission rate is leading to spikes in cases.
Wednesday
Market movement early was very minimal. Most investors seemed to be awaiting the results of the FRB meeting. The FRB did not disappoint. They will accelerate their taper program from $15B/month to $30B. They also signaled the potential for as many as 3 hikes in 2022. This data should prompt a negative market response, however, the markets climbed in response. The S&P 500 ended up adding 1.63% on the day. So why the gain? Investors likely view the increased action from the FRB as being in line with market expectations given current conditions. By accelerating their process, they avoid a potential misstep of being too dovish and letting inflation run away from them.
Thursday
Re-opening stocks did well on the day, but the markets as a whole fell back from the surge on Wednesday. The Nasdaq lagged the S&P 500, which is logical since it has been leading on the up days as well. The S&P 500 ended up losing 0.88% on the day. The Nasdaq dropped 2.47%. The moves on the market seem to be the long response to the FRB move yesterday. The actions of the FRB would lead towards leaner demand and softer profits on the year.
Friday
Markets tumbled on Friday while there was no major economic data on the day. The void left by economic data pushed the focus to headlines surrounding Omicron. The S&P 500 ended up falling 1.07% to close out Friday. The week saw the S&P 500 tumble 1.94%!
Conclusion
One of the fears of an overly aggressive FRB is taking action before the job market can fully mature. Participation is an important factor to the term “full” employment. In 2007, participation in the labor market was running at 66% of the population. After the 2007 recession, the rate continuously fell until 2013. The workforce contraction had much to do with the boomer generation retiring. From 2013 to 2020, the participation rate held steady at 63%. This was a combination of boomers holding off retirement and an influx of the millennial generation into the work force. During the pandemic, the rate fell to 60.8% and has since bounced back to 61.8%. So, the big question is, “Where is that other 1.2%?” If we start attacking inflation before they comeback, will we stem job growth and prevent full employment? No. They are not coming back. With every recession, you’ll find workers who decide that retirement chose them rather than the other way around. As a result, there is very little fear that the FRB’s actions are moving too quick, but rather too slow.
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