There was an onslaught of data last week, which led to gains. Should more be expected with the coming earnings season?
Monday S&P 500 0.27%| NASDAQ 1.09%
ISM Manufacturing unexpectedly slipped and remains in contractionary territory. The weaker economic data would typically signal lower rates as rate cut expectations would increase. To the contrary, 10-year treasuries rose on the day. In the face of weak economic data, the start of the quarter brought optimism towards the next three months.
Tuesday S&P 500 0.62% | NASDAQ .84%
JOLTs job openings rose more than expected to 8.14M openings. For perspective, there were 6.6M unemployed as of the May report. The strong jobs data did not deter markets, though; this may be because the Federal Reserve Board (FRB) Chair, J. Powell, spoke on the day. He indicated that progress is being made towards their inflation target. This is the ‘secret sauce’ needed to justify future rate cuts.
Wednesday S&P 500 0.51% | NASDAQ 0.88%
Initial jobless claims rose for the week to 238K from 234K; the level remains elevated, albeit from all-time lows. Factory orders unexpectedly slipped into the negative on the month. Additionally, ISM Services unexpectedly slipped into contractionary territory. This is all bad news for economic production, so why did the markets rise? Interest rates fell as this data increases the likelihood that the FRB will lower rates sooner than expected. The heightened odds are now calling for a .25% cut in September and December, according to CME FedWatch.
Thursday S&P 500 -% | NASDAQ -%
Happy Independence Day!
Friday S&P 500 0.54% | NASDAQ 0.90%
Happy Jobs Friday! The unemployment rate rose to 4.1%, Nonfarm payrolls beat expectations, and participation rose to 62.6% from 62.5%, all for June. The unemployment rate went up even though we added 206K jobs??? Participation went up so, with more people in the market, the rate can go up even as jobs are added. This is a positive signal that workers are returning to the work force. The rise on equity markets, however, was on hopes that economic weakness would be enough for an FRB rate cut.
Conclusion S&P 500 1.95% | NASDAQ 3.55%
This was a busy week for economic data, especially for a holiday shortened week. We got weaker Jobs, manufacturing, Services, and Factory orders. The weakness led to stronger markets on hopes the FRB will cut rates BEFORE a recession can materialize. The coming week starts second quarter earnings. Valuations are stretched (S&P 500 P/E: 28.94) and economic production is weak, very little should be expected from this season. This could be the start of volatility that would lead into the Autumn.
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The Federal Reserve would like to hike at a fever pitch. What did last week tell us about their ability to do so?
Monday S&P 500 2.95% | NASDAQ 3.62%
The weekend yielded enough negative news to give us a red Monday. Continued failure of ceasefire agreements spells uncertainty, which the market loves… More and more companies are coming out against Russia’s actions, resulting in more supply chain issue expectations. Interestingly, yields rose with the market fall. This was as a result of inflation concerns that would stoke the need for additional Federal Reserve Board (FRB) action.
Tuesday S&P 500 0.72% | NASDAQ 0.28%
The United States announced an embargo on Russian oil imports. Meanwhile, actions out of Europe were more measured. The UK announced a phase out, while the EU announced a 2/3 reduction by year end. Markets travelled between green and red all day, but one thing was consistent: the NASDAQ outperformed the S&P 500. This marks a deviation from recent norms.
Wednesday S&P 500 2.57% | NASDAQ 3.59%
In a stark contrast to the first few days of the week, Wednesday surged greatly. The move represents investor fears that inflation will persist, and the FRB will be able to do little about it. The inflation source will be fuel/food, which will erode consumption: the same net effect of an FRB raising interest rates. Bottomline, when you are spending on gas, you are less likely spending elsewhere.
Thursday S&P 500 0.43% | NASDAQ 0.95%
Investor sentiment was decidedly sour at the open as markets were down more than 1% at points. They rebounded late to cut losses. This happened in the face of a stalemate in talks over Ukraine. The driver was a statement by Putin that gave hope that oil shortages may not occur. He indicated that they would honor all energy commitments (even with countries that are not aligning with them). This brings hopes of contained inflation, which would keep from eroding consumer spending.
Friday S&P 500 1.29% | NASDAQ 2.17%
Markets spiked at open but faded throughout the day. Markets accelerated their losses into the close. Hurting confidence from the start of the session was weakening Consumer Sentiment. It had fallen to the low 70’s when the pandemic began, but it is now projected into the high 50’s. This is a level not seen since mid-2011, when the US breached the debt ceiling. Additionally, energy prices provided pressures to the market concerning investors that inflation would remain pervasive. The see-saw around oil prices will continue to drive investor sentiment until more certainty is known about Ukraine’s future.
Conclusion S&P 500 2.88% | NASDAQ 3.52%
The week looked much like the last several. The NASDAQ fell harder than the S&P 500 as inflation concerns make an FRB rate hike all but certain. This would mark the second lift off for the FRB over the last 7 years. During the last rate hike environment, the FRB increased the rate from 0.0% to 2.25% – 2.5%. The move took four years to happen. This time it is expected by many that the FRB would make that same progress in about one years’ time. This is why the aggressive repricing of stocks occurred at the start the year. Investors are pricing in the impact higher rates will have on earnings. Realistically, headline risk evolves and may cause reason for pause over time. FRB progress to 2.5% would likely take two years given headline risks.
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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.