Infrastructure Hopes | June 25, 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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Markets rose on hopes of an infrastructure compromise. What does it mean for markets and inflation as we look ahead?

Monday

The new week brought optimism. So much so that the markets rebounded more than half the losses from the prior week in one day. All eyes are to Washington, however as Federal Reserve Board (FRB) Chair Powell is set to testify.

Tuesday

FRB Chair Powell’s testimony about inflation rising higher than expected did not sully the mood of markets. The S&P 500 still rose 0.51% on the day. While he acknowledged it rose more than they expected, they won’t be making any rash decisions about increasing rates early.

Wednesday

Markets were fairly unchanged for the day. The S&P 500 fell 7.44 points (0.18%). The new home market continued to cool as purchases fell by 5.9% (May). While construction costs have increased approximately 10% over the last year, new home prices have risen 17%.

Thursday

The market activity was bullish on Thursday with all major indices higher. This move was a forward-looking move as durable goods orders and new unemployment claims missed estimates. An infrastructure deal was agreed upon in principle which brought optimism on spending.

Friday

Consumer sentiment missed estimates. It was expected to rise to 86.4 and came in at 85.5 (June). The softer sentiment could lead to weaker than expected retail spending. It’s becoming more likely that second quarter GDP estimates will miss expectations.

Conclusion

Markets surged back this last week. Not on economic data, as that was weak, but rather the hope brought about from an infrastructure package. If delivered, it should alleviate some of the jobless rate issues plaguing the new expansion. However, it will likely exacerbate some supply line constraints. This will calm some overall inflation concerns while leaving material prices elevated for some time.