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 climbed nicely last week on the back of earnings, but is there a storm brewing?
Monday
In mixed market activity, the S&P 500 rose 0.3% on the day. Markets opened in the red and managed to climb their way out. The week opened, as many have recently, where the focus was on inflationary pressures. This gave way to earnings, which continue to out-perform. Reporting is still focused on financials but shifting towards technology.
Tuesday
Markets climbed on Tuesday as the S&P 500 added 0.75% on the day. Building permits disappointed on the day, shrinking by 7.7%. Driving markets higher was earnings strength as a much heavier swath of companies reported in comparison to Monday. All major earnings (that came in before close) beat market expectations.
Wednesday
The climb continued on Wednesday with the S&P 500 rising 0.37%. Earnings continued to be in focus as 78% of major reporters beat expectations and 61% beat on revenue. A low percentage of S&P 500 companies have reported, but the season is starting with good strength.
Thursday
Although mild, the S&P 500 managed to rise for the seventh straight session, adding 0.26%. Initial jobless claims fell to their lowest level since the start of the pandemic at 290K. Normal pre-pandemic levels were around 200K. On-going unemployment claims have fallen by about 100K each week over the last 5 weeks. This could mean a strong jobs report for October (released on the first Friday of November).
Friday
Markets opened in the green but reacted adversely to comments from Federal Reserve Board (FRB) chair Powell. He admitted that inflation is persisting longer than the FRB has expected. This admission removes the term transitory from the conversation. The word that the FRB has been feeding markets for about 10 months. He expressed that the expectation is for inflation to begin to pull back to more normal levels late next year. He also indicated that the FRB intends to begin tapering shortly and be completed by the middle of next year. So, that type of accommodation should be fully removed earlier than previously anticipated. This was digested by investors as a more hawkish stance by the FRB.
Conclusion
The S&P climbed fairly nicely across the week courtesy of an earnings season that is starting stronger than expected by investors. The statements by FRB chair Powell may have lasting reverberations into next week. Watch fixed income markets for stress from potential updated expectations for when the FRB may start to raise interest rates. Bank of America has already updated their forecast to late 2022. Additionally, the unresolved debt ceiling still looms large for the third of December…
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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.