Markets, Fed not so confident, series of stock market losses, Chinese economy, my transactions

Sonnet 116 (excerpt)

Don’t leave me at the wedding of true spirits

Admit the obstacles. love is not love

Who alters when he finds alteration,

Or bend with the remover to remove:

Oh no! It’s an ever fixed mark

Who watches the storms and is never shaken;

It’s the star of every wandering bark.

-William Shakespeare

Is it love?

The Nasdaq Composite was down 8.5% for the week at the nadir of Thursday’s regular trading session. The S&P 500 had made short work of the 4,000 level, trading well below 3,900. We were talking about the fierce bullish reversal that the equity markets experienced last Thursday morning. With great anticipation, we looked to see if seedlings of some kind of “trend shift” might take hold.

A lot of wood had been cut. April consumer prices, as well as April producer prices, had reached the band (both at the headline and core level) from their March highs, but also a bit warmer than had been the consensus. Fed Chairman Jerome Powell, one of a plethora of Fed officials due to speak publicly on Tuesday, spoke last week. He appeared a little less sure, even less confident than he had been a week earlier when he discussed the Fed’s ability to control inflation, as well as the central bank’s ability to stage a landing. slowly.

Oh, did I mention the total collapse of the entire cryptocurrency complex? As instability became the hallmark of most “stablecoins”…somehow backing imaginary currencies with other imaginary currencies failed to produce a consistent result and predictable under stress. Who knew?

Investors flocked to the longer end of the US Treasury yield curve, flattening that curve and putting real pressure on the ten-year/three-month spread…

Although far from close to reversal, it is noted that the “Fed recognized” the most accurate predictor available of sustained economic contraction in the United States, manages to drop more than 35 basis points in just over of a week. That said, this came after an intense run, and the spread appeared to find support at its 50-day SMA.

So what about stocks?

And them ? The S&P 500 rebounded 2.39% on Friday, to close down 2.41% for the week. The S&P 500 is now down 15.57% for 2022. The Nasdaq Composite rebounded 3.82% on Friday, to close down 2.8% for the week. The Nasdaq Composite is now down 24.54% year-to-date and 31.6% from its November peak. The Russell 2000 rebounded 3.06% on Friday to close down 2.55% for the week. The Russell 2000 is now down 20.16% for this year and 27.1% from November’s peak for this index. Stocks, broadly referred to, have posted six consecutive weeks of losses. It’s the longest such weekly streak since 2008.

S&P’s 11 sector-selected SPDR ETFs closed in the green for Friday, with all 11 gaining at least 1%. However, 10 of the sector’s 11 SPDRs closed in the red for the week, with only Consumer Staples (XLP) in green (+0.3%) over the five-day period. Seven of those 11 funds fell at least 2% for the week and four of the 11 fell at least 3%, with REITs (XLRE) and consumer discretionary (XLY) taking the brunt of the selloff.

The width was fantastic on Friday. The winners beat the losers on the NYSE by about 4 to 1, and on the Nasdaq market site by about 3 to 1. The increase in volume took a 91.5% share of the composite trade listed on the NYSE and 88.5% of the global stock listed on the Nasdaq. The caveat, as is often the case…at least lately, when looking for some sort of confirmation of a directional shift for these markets, has been the lack of trading volume. The same goes for this last attempt. Overall trading volume fell significantly on Friday compared to Thursday (-18.4% for NYSE-listed names, -11.9% for Nasdaq-listed names). In fact, for the constituent member names of the S&P 500, Nasdaq Composite and Russell 2000, overall trading volume on Friday was the lowest trading volume of the week. Clearly, Friday’s rally confirmed nothing.

funny day sunday

We discussed the Fed suddenly looking less confident. The Atlanta Fed’s GDPNow model still shows US economic growth of 1.8% in the second quarter (q/q SAAR). Although quite paltry after printing -1.4% in the first quarter…it would prevent the US from officially entering a recession. The Atlanta Fed will update the model twice this week, after Tuesday’s results for April retail sales and April industrial production, then again after Wednesday’s printout for housing starts. of April.

Before we even get to Tuesday, we have to discuss Sunday. On CBS News’ “Face The Nation” with Goldman Sachs (GS) Senior Chairman (and former CEO) Margaret Brennan, Lloyd Blankfein said there was a “very, very high risk” of a recession in the US. United States. Blankfein added: “If I was running a big business, I would be very prepared for this. If I was a consumer, I would be prepared for this.” Blankfein discussed the tools available to the Federal Reserve to fight inflation and referenced his firm’s economics team during the interview… “Our economists believe that the risk of recession here in the United States over the next few years is around 30%. But again, that’s a big unknown, and there’s a big disparity in results, so we’ll all be watching that closely.”

Elsewhere on Sunday, China’s National Bureau of Statistics released its monthly batch of data points for April and it’s clear the Covid-related shutdowns have had an even bigger than expected negative impact on China’s economic performance. For the month, Chinese retail sales came in at -11.1%y/y vs expectations of -6.2%, while April industrial production came in at -2.9%y/y against expectations of +0.5%. Investment in fixed assets (+6.8% against expectations of +7%) and the unemployment rate in China (6.1% against expectations of 6%) also missed their target, but less dramatically . The magnitude of these declines for retail sales and industrial production is simply staggering.

Income Season Update

Earnings season ends this week, with really only stragglers arriving after that. This week, the focus will be on retailers with rivals such as Walmart (WMT) and Target (TGT), as well as reports from Home Depot (HD) and Lowe’s (LOW), among others. According to FactSet, with 91% of the S&P 500 having already released a report, 77% of these companies reported an upward earnings surprise and 74% an upward revenue surprise.

The blended rate (reported and forecast) of year-over-year earnings growth in the first quarter was 9.1% for the second week in a row, as the blended rate of revenue growth edged up to 13 .4%. Analysts expect margin pressures to be discussed in Q2 as consensus for Q2 earnings growth has now fallen to 4.4% from 4.8% in the week last and 5.5% the previous week. This, while Q2 revenue growth expectations rose slightly from 9.8% to 9.9%. Sticking to data provided by FactSet, analysts forecast full-year earnings growth of 10.1% on revenue growth of 10.2%.

Interestingly, the S&P 500 came out last week at just 16.6 times (12 months) forward earnings. That’s well below the S&P 500 five-year average at 18.6 times, and for the first time in a long time…also below the S&P 500 ten-year average at 16.9 times. Five trading days ago, the S&P 500 was trading at 17.6 times forward earnings.

My minds

Well, my first thought is that the New York Rangers somehow managed to defeat the Pittsburgh Penguins in Game 7 overtime after losing three games to one earlier in the game. series and looking pretty awful up to this point.

After that, we turn to our beloved market. I think there’s a good chance that stocks in general, while technically not really oversold, have a good chance to trade higher this week, at least for a little while. I’m not all in. I remain “cash” and will negotiate this market much more easily than I will invest in it. It’s just safer in a market that can’t be trusted without volume-based confirmation of a trend change. We don’t have that yet.

That said, you still want to be smart about adding risk at a discount to names you still believe in for one reason or another. Last week I added Apple (AAPL), Walmart, General Dynamics (GD), Kohl’s (KSS) and Advanced Micro Devices (AMD) on weakness. Walmart and Kohl report this week.

Economy (all Eastern times)

08:30 – Empire State Manufacturing Index (May): Expected 15.8, last 24.6.

4:00 p.m. – Net long-term ICT flows (March): Last $141.7 billion.

The Fed (all Eastern times)

08:55 – Speaker: New York Close. fed. John Williams.

Today’s Earnings Highlights (BPA Consensus Expectations)

Before the Open: (WEBR) (.18)

After the close: (TTWO) (1.03)

(WMT, AAPL and AMD are interests in the Member Club Action Alerts PLUS. Want to be alerted before AAP buys or sells these stocks? Learn more now.)

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