 | AUTHOR: Jason Roque, CFP®, APMA®, AWMA® TITLE: Investment Adviser Rep – CCO TAGS: S&P 500, NASDAQ, Retail Sales, Housing, Earnings, Tech |
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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Welcome, 2022! There was a quick shift in market behavior as the calendar rolled over. What does it mean for the year?
Monday
The week began much as it ended. The low volume trade continued, resulting in an S&P 500 that rose 0.6%. Interest rates rose as expectations increased, speculating that Federal Reserve Board (FRB) minutes would reflect a more hawkish central bank.
Tuesday
The mild market activity continued on Tuesday. The S&P 500 ended the day down 0.1%. In sharp contrast, the Nasdaq slid 1.3% as we see leadership focused on Value stocks over Growth stocks.
Wednesday
Markets dove on Wednesday on FRB minutes that showed a more hawkish FRB. Taper, hike, and reduction of the balance sheet all to be on the table for March. Value outperformed Growth again, but everything fell. Hikes being on the table for March means that 3 to 4 hikes are possible for 2022.
Thursday
There was no dead cat bounce on Thursday in response to the fall on Wednesday. A dead cat bounce is when markets surge in response to a fall the prior day but fall short of recapturing the previous high. Interest rates remained elevated on the week in response to a hawkish FRB. ISM serviced data underwhelmed, falling 4 points short of the expectation. Omicron infection rates likely played into the slowdown.
Friday
Happy Jobs Friday! Jobs added missed expectations as the impact of Omicron began to make itself known. This generated lower rates and a sideways market at the open. The impression being that the FRB will have reason for a pause in March should jobs continue to show slow gains.
Conclusion
The volatility of the markets rose 2 points across the week. Additionally, 10-year treasury rates climbed 14 basis points. Both were most notably impacted by an aggressive FRB report. Volatility is really an indication of the next month or so. In contrast, the interest rate move is more likely an indication of 2022. The FRB is now expected to be more aggressive on the interest rate front. Tighter rates do mean less consumer spending, which lead to less corporate earnings. If done right, a balance can be reached, allowing for a good year for equities.
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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
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.