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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Monday
Rotation, rotation, rotation. Markets fell Monday led by the NASDAQ. The gainers for the day were financials, commodities, and specifically energy. The move is indicative of rising inflationary expectations.
Tuesday
The start of trading on Tuesday looked much like Monday as markets opened deep in the red. Technology shares led the market lower once again. The move, however, did not last. The S&P 500 erased all of its losses for the day to end the day up 0.13%. The NASDAQ was not as lucky as it still fell 0.5%. This further advanced the value vs. growth trade.
Wednesday
Markets on Wednesday shrugged off the recent woes and steamed to a strong close. The S&P 500 rising 1.14% out pacing the NASDAQ at 0.99%. Much of this came following Federal Reserve Chair comments affirming loose monetary policy well into the next economic expansion.
Thursday
The day started bad and just kept getting worse. The S&P 500 tumbled 2.45% and the NASDAQ tumbled 3.52%. This was happening as interest rates continued to rise in anticipation of inflation later this year. This inflationary expectation is nothing new. The economy is improving quicker than expected and appears to be spooking the markets.
Friday
The S&P moved between positive and negative territory all day. Settling 0.48% lower. This was not much of a rebound statement after the tumble markets took Thursday. The reflation trade that calls for strong growth later this year is concerning in the credit markets. The burden that debt will have on corporate balance sheets as rates rise could cause concerning pressure on earnings.
Conclusion
Last week was a rough one for the markets. The S&P 500 lost 2.45% and the NASDAQ fell 4.92%. The losses last week reflect concerns that the economy will grow too fast. As consumption ramps up, inflation becomes more of a risk. That inflation will likely lead to a steeper yield curve causing adjustable-rate debt to increase interest obligations on corporate balance sheets. This increased debt obligation is feared to cut into corporate profits in the future. In this way too much growth can be a bad thing… Kind of…
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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.