Broad Market Route? | March 5, 2021 | FFS

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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The route of the NASDAQ picked up steam last week. What does this mean for broad markets?

Monday

Markets rebounded strongly on Monday, led by the Nasdaq that was so sorely bruised last week. The Nasdaq rose 3.01% while the S&P 500 added 2.38% on the decidedly bullish day. Leading the way were financials, technology, and industrials.

Tuesday

The day started in the red. The sell trend continued to pick up steam additional losses persisted. This happened as interest rates continued their march higher.

Wednesday

The reflation/inflation trade gathered steam on Wednesday as markets sold off strong. The S&P 500 lost 1.32% and the NASDAQ fell 2.7%. The tech sell-off strengthens as yields rise. The rise could also pose a concern for the feverish housing market as mortgage rates rise.

Thursday

The day started very mundane and in the green. That faded quickly after Federal Reserve Board (FRB) Chair Powell spoke. He said they will not raise rates any time soon, however, no potential solutions for current rate issues were given. Markets dove and interest rates rose on the lack of guidance from the FRB. Investors at this time seem to be betting against the FRB’s statements which is a dangerous stance to take. The assumption is that inflation will be meaningful enough that the FRB will react sooner than they want.

Friday

Markets started the day in the green only to fade quickly to be down as much as 1.2% for the S&P 500. Mid-morning however everything (and I mean everything) came surging back. The mid-morning low put the NASDAQ squarely in correction territory (a pull back of 10% or more). It had fallen nearly 12% from its high in February. The NASDAQ ended up more that 1.5% while the S&P 500 led the way, up almost 2%.

Conclusion

The S&P 500 rose 0.81% on the week. This was its first positive week in the last three. Recent market weakness should be indicative of a correction rather than a prolonged downturn for several reasons. Manufacturing and services are both in expansionary territory. Jobs are growing at a pace quicker than expected. Vaccinations are moving ahead of schedule. The FRB is remaining very accommodative. Additional stimulus is coming sooner than later. All the turmoil has been in fear that growth is going to be TOO strong, TOO fast, causing inflation. The fear being that it will cause corporations to miss elevated growth expectations on a higher debt burden. That said, the route of the NASDAQ is occurring on positive economic expectations, which should help lead the markets higher.