On the Rise! | April 9, 2021 | FFS | Monument, CO

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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Markets were on the rise last week, but so were initial jobless claims. What does his mean to re-opening efforts?

Monday

Markets climbed nicely to open the week. ISM Non-manufacturing (Services) data released a strong reading at 63.7 (Mar). As a reminder over 50 signals expansion and under 50 signals contraction. This is by far the highest reading since the start of the pandemic. Non-Manufacturing is a major reading as approximately 84% of our economy is built on services.

Tuesday

The S&P 500 was minimally changed on Tuesday as available jobs increased sharply. This is a signal of continued re-opening momentum. We are currently in a ‘good news is bad’ cycle as concerns over inflation persist. The more it appears things are going well the more market softness we seem to be getting.

Wednesday

Crude oil inventories fell more than twice the expected amount; however, OPEC supply hikes are expected. Energy prices were negative, but minimally changed. The S&P 500 changed minimally as well, but to the contrary rose for the day.

Thursday

Markets climbed on Thursday as jobless claims rose. The softer trend in jobs led to NASDAQ leadership and interest rates softening. Energy lost value as natural gas storage increased. The increase was less than expected so it should carry a bullish trend ahead.

Friday

Leading into the weekend, markets gave us a buy signal. The S&P 500 rose .76% with most of the gains coming in the last hour of trading. This trend signals no fear in the weekend headline cycle and a buy mentality from investors.

Conclusion

The week carried many bullish signals. The IMF is projecting a 6.4% growth rate for the US in 2021. Service industries showed strength with a 63.7 rating. Oil prices moderated reducing the risk to headline inflation (in the short term). Yet a troubling signal persisted with the initial jobless claims rate increasing for the third straight week. During a time where states are beginning their re-opening process, the expectation is for this statistic to start to moderate. Should this be concerning? No. Most states have not executed their re-opening as of yet. One of the largest states by population, California, is targeting mid-June for their re-opening process. Delays in re-opening just help keep inflation expectations in check at this point.