04|05|2022

Is the Party Over? | April 1, 2022

AUTHOR: Jason Roque, CFP®, APMA®, AWMA®
TITLE:   Investment Adviser Rep – CCO
TAGS: S&P 500, NASDAQ, CPI, PPI, Oil, Retail Sales, Sentiment
  

Markets lost ground for the second week. Does this say more about the last two weeks or the week ahead?

Monday                       S&P 500 0.11% | NASDAQ 0.41%

Markets opened the week in a muted tone. There was very little movement as Consumer Price Index (CPI) data was awaited on Tuesday.

Tuesday                        S&P 500 1.12% | NASDAQ 1.54%

CPI data for February showed inflation inching up slightly. Markets opened in the red on the news, but an earnings beat by Oracle allowed equities to march higher.

Wednesday                 S&P 500 0.19% | NASDAQ 0.54%

Crude oil inventories fell when a surplus was expected, which will further support higher prices for energy. Interest rates climbed on the back of the higher than expected CPI data from Tuesday. Growth stocks lagged as the data implies the Federal Reserve Board (FRB) will be less likely to cut rates.

Thursday                     S&P 500 0.29% | NASDAQ 0.30%

The Producer Price Index (PPI), a wholesale inflation gauge, rose in February to 1.6%. Retail sales advanced less than expected and initial jobless claims remained benign. A strong jobs market with firming inflation does not bode well for future rate cuts. Markets sold on the news, though not aggressively, as hope remains for FRB rate cuts later in the year.

Friday                          S&P 500 0.65% | NASDAQ 0.96%

Consumer sentiment is projected to fall to 76.5 in March from 76.9 in February. While lower, February and March are the first readings in the 70’s since August of last year. The week closed out on a sour note as commodity prices rise with inflation data. Further concerns mount that the inflation fight may have longer to go before a rate cut.

Conclusion                  S&P 500 0.13% | NASDAQ 0.70%

This is the first back-to-back losing weeks for the market in 2024. This leads to an FRB meeting week where guidance about potential future rate cuts will be hotly watched. Not only is the FRB meeting next week, but there is very little in the way of economic data for the week. This puts all the more focus on the FRB. 

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Markets flashed a recession signal last week. Is the party over or do we still have room to grow?

Monday   S&P 500 0.71% | NASDAQ 1.31%

The markets started the day and week in the green, but quickly faded as the 5-year and 30-year yields inverted. This means you could get more interest from a 5-year bond than a 30-year bond. This leads to fears of a recession. The key rate that would forward project a recession is the 2-year vs the 10-year (foreshadow). Markets bounced back late to end in the green as investor sentiment continues to support market valuations.

Tuesday   S&P 500 1.23% | NASDAQ 1.84%

Markets rose, but it was in spite of some poor performance out of key categories. The Energy complex struggled as the shutdown of Shanghai, due to COVID testing, is taking a toll on demand. Optimism over a stock split in TSLA strengthened sentiment late in the day.

Wednesday   S&P 500 0.63% | NASDAQ 1.21%

Russian demand for energy payments in rubles caused concern as sanctions have attempted to force a reduction of ruble use. Additionally, a classic signal for a future recession (6 to 24 months out) triggered. The 2-year vs the 10-year treasury rates inverted. The meaning can be seen that rate of growth beyond 2 years will be lower than current growth rates.

Thursday   S&P 500 1.57% | NASDAQ 1.54%

Oil prices slid as another round of Ukraine/Russia talks gets underway. The US also announced a release of 1M barrels of oil per day from strategic reserves. Initial jobless claims rose last week and was an ominous foreshadowing of tomorrow’s job report.

Friday   S&P 500 0.34% | NASDAQ 0.29%

Jobs Friday! Job data impressed as the unemployment rate fell to 3.6% and 431K nonfarm payrolls were added in March. The all-important participation rate moved a notch higher to 62.4%. So why didn’t the markets soar? The strength of the job market means the FRB is more likely to do a 0.50% rate hike in May. This pushed the 2-year yield over the 10-year yield again. As a classic sign of a coming recession (within the next 2 years) markets took the signal hard.

Conclusion   S&P 500 0.06% | NASDAQ 0.65%

Though the intra-week volatility was elevated, markets ended the week slightly unchanged. The Nasdaq edged higher than the S&P 500 as bonds flashed a classic recession signal for the future. Inversion of the yield curve happens more than just leading into a recession; however, it precedes every recession. The last two times it has happened, the S&P 500 has grown pretty substantially for the 12 months. So, even if the signal is right, the party is not quite over. Think of it as last call…

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Your interest in our articles helps us reach more people.  To show your appreciation for this post, please “like” the article on one of the links below:

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If you would like to receive this weekly article and other timely information follow us, here.

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.