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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The Federal Reserve is trying to put the economy into ‘neutral’. What does it all mean for growth?
Monday S&P 500 0.81% | NASDAQ 1.90%
Ukraine regained territory in their war over the weekend. This improved sentiment early for markets. Elon Musk announced that he currently holds a 9% share of Twitter, which sent tech stocks higher.
Tuesday S&P 500 1.26% | NASDAQ 2.26%
ISM Services data came out strong at 58.3, but that did not deter a selloff in markets Tuesday. Federal Reserve Board (FRB) Governor Brainard made indication that ‘Quantitative Tightening’ could begin as early as May. This is earlier than markets are anticipating. This sent Bond and stock markets south. The ten-year treasury added .14% in yield on the day. If there was a silver lining, it would be that the 2/10 yield curve reverted back to a positive slope.
Wednesday S&P 500 0.97% | NASDAQ 2.22%
Markets opened lower and stayed there throughout the day. The anticipated FRB minutes from March were expected to show a hawkish FRB, sure enough they did. It is now expected that we will see a 0.50% hike in May. Additionally, FRB roll off of their balance sheet will likely begin.
Thursday S&P 500 0.43% | NASDAQ 0.06%
Market movements on Thursday were focused on a more aggressive FRB, given the minutes from Wednesday. Markets were up, but to be noted was that the leading stock sectors were defensive, i.e. staples and healthcare. Initial jobless claims fell to 166K for last week, which signals continued strength in the job market. This signal reinforces FRB action.
Friday S&P 500 0.27% | NASDAQ 1.34%
Growth stocks led lower on Friday as concerns swell regarding a potential recession as a result of an over-active FRB. We have time before a recession, but markets pricing growth stocks will not be fortunate in the run up.
Conclusion S&P 500 1.27% | NASDAQ 3.86%
Markets moved lower for the week as yield curve inversions and an aggressive FRB could bring us closer to recession. ‘Neutral’, where the FRB is neither tightening nor loosening monetary policy is perceived to be between 2% and 2.5%. We are currently sitting at 0.25%. If the FRB were to aggressively raise rates over the remainder of the year, then we could get to ‘neutral’. This means that we likely have 8 to 12 months before tighter monetary policy could lead to a recessionary environment.
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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.