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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Is Santa’s rally coming, or will Omicron steal the show? Most importantly, what does it all mean for 2022?
Monday
The week opened in free fall as the Nasdaq led the way lower. Omicron news and the Build Back Better plan getting nixed seemed to sour investors to open the week. Haven stocks did not gain interest in leu of an equity sell off. This came as a result of the anticipated Federal Reserve Board (FRB) rate increases in 2022.
Tuesday
Markets spiked up on Tuesday. It was strongly seen as investors deciding to ‘buy the dip’. There has been a 3% pullback over the last few sessions. The S&P 500 gained 1.78% on the day.
Wednesday
‘Buy the dip’ continued on Wednesday. One clear distinction from a normal ‘buy the dip’ is that volumes are definitely holiday lite. That means that very little can be made of the current rally. The S&P 500 ended up gaining 1.01%.
Thursday
In a holiday shortened trading week, markets climbed to close the week. A word of caution would be that trading volume has been extremely light! It has been running 25% of that of a normal trading day. Not surprising, but cause for caution that this buy spree may not be well founded.
Friday
Merry Christmas! Don’t shoot your eye out!
Conclusion
The week started with an echo of last week’s trading weakness. It very quickly shifted to perhaps the beginning of a Santa Claus rally. Historically, this occurs the week between Christmas and New Year’s. Again, on light trading volume. This could lead to a strong year end but could be of concern for a pullback in January. Also, given past circumstances, the US will likely be in the thick of the Omicron variant come January.
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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.