Will the Clouds Part? | February 18, 2022 - Financial Future Services

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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It was a rough week for markets. Volatility is up, but will it be here to stay or are the clouds soon to part?

Monday

Markets dropped at the opening bell and gained briefly in mid-day trading; however, the S&P 500 never really gained momentum for the day. The index closed down .38% for the day. Importantly, the 10-year treasury closed above 2% for the second time in a week.

Tuesday

The S&P 500 opened in the positive at the news of easing tensions in Russia and Ukraine. PPI Figures came in slightly lower at 9.7% (Jan) compared to 9.8% (Dec) but are still high. As wholesale prices increase, the price to the consumer will also go up which is the concern with inflation. The market appeared undeterred following three day of negative trading. S&P closed up 1.58%.

Wednesday

The market looked like it was preparing for another down day in anticipation of FRB minutes from January. The S&P 500 was down 0.8% most of the day. In the end it climbed out, managing to rise 0.09%. At the same time the 10-year treasury slipped back below 2%. So, while the markets regained composure, safe haven assets were being purchased.

Thursday

The S&P 500 tumbled on Thursday, falling 1.70%. The NASDAQ led the way lower, falling 3%. Fears came from two fronts on Thursday. Markets were feeling tensions rise in the situation between Ukraine and Russia. Additionally, Federal Reserve Board (FRB) member, Bullard, spoke. He indicated the FRB would have to take more aggressive action than the markets were pricing in to fight inflation.

Friday

Markets continued the slide into Friday. The S&P 500 lost 0.72% on the day. It is not surprising to see markets sell into the long holiday weekend. It is an extended period of time for bad things to happen, given the geo-political risks at play.

Conclusion

The S&P 500 ended up losing ground by 1.57% last week. It is coming close to closing down 105, which marks a technical correction. Volatility is up and safe haven assets are catching a bid. This marks the first correction since September-October 2020. They are typically 2 to 3 months in duration. That means we still have time for some more volatility before the cloud’s part…