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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Stocks slid for another week. Was there anything we should learn from the moves this last week?
Monday S&P 500 1.03% | NASDAQ 0.60%
Markets opened the week as they left off the prior week. This has been a common trend as of late. The one difference being that markets closed below their June 16th low of 3,666.77, at 3,655.04. The S&P 500 is now down 23.80% YTD. The only meaningful economic news on the day was an under sold 2-year treasury auction. Being undersold provided heavy upward pressure on 2-year and 10-year rates.
Tuesday S&P 500 0.21% | NASDAQ 0.25%
The pressure was too much for markets on Tuesday. They opened in the green, with the S&P 500 up as much as 1.6%. All of that faded, though, as continued downward pressure on sterling caused upward pressure on the dollar. Sterling has been fading since the new government in the UK announced a tax cut package. This comes at a time when central banks around the world are tightening policy. It created a scenario where rates are expected to jump 1.25% and the currency is falling. These are typically highly correlated, which is in direct opposition to what is happening now. Tax cuts are viewed as inflationary and the wrong direction for a developed economy given the inflation issue at hand.
Wednesday S&P 500 1.97% | NASDAQ 2.05%
Rates swung violently to the south. When rates fall bond prices rise. Apparently, stocks rise as well as the easing rate environment created growth in equity markets. The Bank of England started a two-week bond buying program Wednesday. This was done in an effort to stem the bleeding as rates were running away to the north. Not much is expected to be different two weeks from now. This unexpected program sent rates lower drastically in the UK and also here in the US.
Thursday S&P 500 2.11% | NASDAQ 2.84%
The Thursday trade retraced all the gains made on Wednesday. GDP was re-affirmed for Q2 at -0.6%, providing two consecutive quarters of negative GDP. Classically a recession, but not this time. The logic is that consumer spending rose by .5% but that inventories dragged overall GDP into negative territory.
Friday S&P 500 1.51% | NASDAQ 1.51%
Quarter number three of 2022 is in the books, and it was not one to remember. The final reading of CORE PCE data (inflation reading) rose to 4.9% from 4.7%. This caused concern that we may be dealing with an aggressive FRB for some time. PCE is the FRB’s preferred measure of inflation.
Conclusion S&P 500 2.91% | NASDAQ 2.69%
Friday was a rough day to cap a rough week, month, quarter, and year. There are reasons for hope in the fourth quarter, but also reasons for doubt. Corporate earnings could buoy the markets in October/November; however, expectations have been diminished as an economic slowdown has been widely expected. The election could cause turbulence or be applauded for grid lock. And of course, the Santa Claus rally could brighten markets as consumer spending increases earnings, or it could drive market fears of more rate hikes from the FRB due to higher inflationary pressures.
One thing is for sure: large single day increases on the equity markets are not our friends. If markets jump up 2%, they can tumble just as fast (as was seen on Wednesday and Thursday).
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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.