Week in Review: Mixed Showing [April 14-23]

The stock market had a mixed showing this week. The major indices all registered gains compared to last week’s closing levels, but concerns about inflation and Fed policy kept a limit on index performance.

There was not a lot of big moves early in the week as investors awaited market-moving economic data followed by Q1 earnings reports from several large banks on Friday. Coinbase Global (COIN) was an exception in that regard, gaining 6.0% on Tuesday after Bitcoin breached $30,000.

Inflation concerns rose to the fore after investors received the Consumer Price Index (CPI) for March. Total CPI fell on a year-over-year basis, which was a welcome development, but core-CPI accelerated on a year-over-year basis. The total Producer Price Index (PPI) and core-PPI declined in March, but the uptick in core-CPI offset some excitement about PPI disinflation.

In addition, comments from Fed officials this week indicated that the latest inflation readings are not likely to convince the Fed to pause its tightening efforts just yet. Fed Governor Waller (FOMC voter) said in a speech before the open on Friday that the Fed hasn’t made much progress on its inflation goal and that he thinks monetary policy needs to be tightened further and remain tight for a substantial period of time. Chicago Fed President Goolsbee (FOMC voter) did, however, indicate that he thinks the Fed needs to be cautious, given the uncertainty about where financial headwinds are going.

The data and commentary this week did not change the market’s view that much in regards to the Fed’s May FOMC meeting. According to the CME FedWatch Tool, the fed funds futures market is pricing in a 77.5% probability of a 25 basis points rate hike in May, up from 71.2% a week ago. The disinflation seen in economic data this week was not enough to offset the core-CPI acceleration and negative sentiment driven by Fed official commentary.

Market participants had been anxiously awaiting the start of Q1 earnings season on Friday. JPMorgan Chase (JPM), Citigroup (C), BlackRock (BLK), and PNC Financials (PNC) all finished Friday’s session with a gain after pleasing investors with Q1 results.

Strength from the financial sector was not enough to carry the market on Friday, though, as policy expectations and rate hike concerns drove price action. A few widely held stocks also sold off and contributed to Friday’s weakness. Namely, Boeing (BA) declined on reports that it expects production and delivery delays for its 737 MAX due to parts problems and UNH sold off on investors’ concerns about meeting short and long-term EPS targets in the face of Medicare Advantage changes.

In addition, regional banks were weak on Friday despite gains in their larger peers.

Still, the S&P 500 hit its best level since mid-February this week (4,150), reaching the upper bound of an 11-month trading range. Trading this week occurred on noticeably light volume, which could be attributed to larger wait-and-see mindset as investors await the bulk of Q1 earnings season. Participants will be keenly focused on guidance and whether earnings estimates are marked down enough or if they need to come down further.

Only four S&P 500 sectors closed with a loss this week — real estate (-1.5%), utilities (-1.3%), information technology (-0.4%), and consumer staples (-0.3%) — while financials (+2.9%) led the outperformers by a decent margin.

The 2-yr Treasury note yield rose 14 basis points this week to 4.10% and the 10-yr note yield rose 12 basis points to 3.52%. The U.S. Dollar Index rose 0.5% to 101.56.

Energy complex futures rose this week. WTI crude oil futures were up 2.5% to $82.55/bbl and natural gas futures rose 4.7% to $2.13/mmbtu.

Below are truncated summaries of daily action:

Monday:

The stock market looked a lot weaker at the open as the main indices fell under the weight of mega cap losses. Even at session lows, though, the broader market showed nice resilience in front of several market-moving events later in the week. Namely, the March Consumer Price Index will be released Wednesday followed by the Producer Price Index Thursday, capped off Friday with Q1 earnings results from several large banks.

The Dow Jones Industrial Average had a stronger showing than its peers, declining just 0.4% at its low for the day, while the tech-heavy Nasdaq saw a loss of 1.3% at its session low before settling the day close to flat. Notably, the intraday low for the S&P 500 coincided with last Wednesday’s worst level (4,072). Monday’s best performer, however, was the small cap Russell 2000 (+1.0%).

The main indices all improved noticeably when the mega cap stocks started to pare earlier losses. The Vanguard Mega Cap Growth ETF (MGK) was down as much as 1.6% Monday morning before closing with a 0.3% loss. This recovery effort helped the market close near its highs for the day, which had the S&P 500 above 4,100.

Reviewing Monday’s economic data:

• Wholesale inventories rose 0.1% in February following a revised 0.6% decline in January (from -0.4%).

Tuesday:

The stock market held up okay Tuesday on relatively light volume, again showing resilience to selling efforts ahead of Wednesday’s Consumer Price Index report for March and the release of the minutes for the March 21-22 FOMC meeting. Relative weakness from some mega cap names limited index level performance, leading the Nasdaq to lag its peers. The Russell 2000 (+0.8%), however, was able to maintain its performance edge over other major indices.

Some of the mega cap stocks were able to climb off their session lows as the broader market settled into a steady grind higher in the afternoon. The main indices took a sharp turn lower, though, with about 30 minutes left in the session as names like Microsoft (MSFT), Apple (AAPL), and NVIDIA (NVDA) retested early session lows.

The Vanguard Mega Cap Growth ETF (MGK) logged a 0.6% decline while the Invesco S&P 500 Equal Weight ETF (RSP) gained 0.7%, reflecting underlying strength in the market. In turn, advancers led decliners by a nearly 3-to-1 margin at the NYSE and a 5-to-3 margin at the Nasdaq.

On a individual basis, Coinbase Global (COIN) made an outsized move Tuesday after Bitcoin reached $30,000, Moderna (MRNA) dropped 3.1% following its acknowledgment that its influenza vaccine candidate did not accrue sufficient cases at the interim efficacy analysis to declare early success, and CarMax (KMX) logged a nearly 10% gain after its better than expected fiscal Q4 earnings results.

Tuesday’s economic data was limited to the NFIB Small Business Optimism Survey at 6:00 ET, which fell to 90.1 in March from 90.9 in February.

Wednesday:

The day started on an upbeat note as investors digested the Consumer Price Index (CPI) for March. The S&P 500 and Nasdaq logged gains of 0.6% and 0.9%, respectively, shortly after the open.

Early gains dissipated, though, as mega cap stocks rolled over and as Treasury yields also climbed off their post-CPI lows. The 2-yr Treasury note yield, at 4.06% before the CPI report, settled the session at 3.97%. The 10-yr note yield, at 3.44% before the report, settled at 3.42%.

There was a subsequent rebound effort that took root after the S&P 500 dipped below 4,100. The market was moving cautiously forward into the release of the FOMC Minutes from the March 21-22 meeting.

The Minutes revealed that participants agreed that inflation remains too high and that the banking problems increased economic uncertainty. Still, all participants agreed that it was appropriate to raise the target range for the fed funds rate even though the staff economic outlook included a mild recession starting later this year given the potential economic effects of recent banking-sector developments.

Things rolled over again in the late afternoon with mega cap stocks leading that slide. The Vanguard Mega Cap Growth ETF (MGK) declined 0.6% Wednesday.

The selling interest was likely also driven more by valuation concerns rather than a negative reaction to the Fed forecasting a mild recession. The cyclical S&P 500 sectors pulled back along with the rest of the market, but still finished the day in a position of relative strength. The industrials (+0.3%), energy (+0.1%), and materials (+0.1%) sectors led the outperformers. The consumer discretionary (-1.5%), communication services (-0.9%), and information technology (-0.6%) sectors were the top laggards, weighed down by mega cap weakness.

Reviewing Wednesday’s economic data:

• The weekly MBA Mortgage Applications Index rose 5.3% with purchase applications jumping 8.0% while refinance applications were flat.
• Total CPI was up 0.1% month-over-month following a 0.4% increase in February. Core-CPI, which excludes food and energy, increased 0.4%, as expected, following a 0.5% increase in February. Services inflation was up 0.3% month-over-month, versus up 0.5% in February, and up 7.3% year-over-year versus up 7.6% in February. Excluding shelter, services inflation was flat, compared to a 0.1% increase in February, and up 6.1% year-over-year versus up 6.9% in February. On a year-over-year basis, total CPI was up 5.0%, versus up 6.0% in February. That is the smallest 12-month increase since May 2021. Core-CPI was up 5.6% year-over-year, versus up 5.5% in February.
  • The key takeaway from the report is the disinflation seen in March. That trend doesn’t necessarily take a rate hike at the May FOMC meeting off the table, especially with core-CPI tipping slightly higher, but it is fostering a belief that a rate hike in May could be the last hike in the Fed’s tightening cycle.
• The weekly EIA Crude Oil Inventories showed a build of 0.597 million barrels versus last week’s draw of 3.74 million barrels.

Thursday:

It was a decidedly strong showing for the stock market. Gains from the mega cap space gave the main indices a big boost, but many stocks also moved higher on Thursday. The positive bias was partially a reaction to the pleasing economic data this morning. In addition, there was likely some short-covering activity contributing to Thursday’s gains.

After some lateral movement in the early going, the major indices spent most of the session in a steady climb, closing near their best levels of the day. The S&P 500 hit 4,150 at its high of the day, marking its best level since February 15.

The mega caps were responsible for a lot of the index level gains as evidenced by the 2.2% gain in the Vanguard Mega Cap Growth ETF (MGK). The broader market still had a solid showing. The Invesco S&P 500 Equal Weight ETF (RSP) increased 0.8%. The market-cap weighted S&P 500 rose 1.3%.

By the close, bonds have given back all of their post-PPI, knee-jerk gains to settle the session with losses across the curve. The 2-yr note yield, which hit 3.90% this morning, settled the session up two basis points to 3.99%. The 10-yr note yield, at 3.37% after the release, rose three basis points to 3.45%.

Notably, stocks advanced as bond yields rose from their post-PPI lows, which were established around the time the stock market opened for trading, suggesting perhaps that there was some asset reallocation in Thursday’s trade.

Reviewing Thursday’s economic data:

• The Producer Price Index for final demand declined 0.5% month-over-month in March following an upwardly revised 0.0% reading (from -0.1%) in February. Excluding food and energy, the index for final demand declined 0.1% month-over-month following an upwardly revised 0.2% increase (from 0.0%) in February. On a year-over-year basis, the index for final demand was up 2.7% versus 4.9% in February. Excluding food and energy, the index for final demand was up 3.4% versus 4.8% in February.
  • The key takeaway from the report is that producers are seeing some welcome disinflation, aided by declines in energy prices; however, the stickiness of core CPI in March has offset some of the excitement about the improvement in the PPI data in March.
• Initial claims for the week ending April 8 increased by 11,000 to 239,000 and continuing claims for the week ending April 1 decreased by 13,000 to 1.810 million.
  • The key takeaway from this report is that it reflects some softening in the labor market but not any clear-cut weakness.
• Weekly EIA Natural Gas Inventories showed a build of 25 bcf versus a draw of 23 bcf last week.

Friday:

Friday’s trade had a predominately negative bias, sending many stocks lower. The main indices tried to move higher in the early going, but quickly fell below their flat lines and remained in the red through the close. Investors were digesting a slate of economic data and corporate news ahead of the open, including some pleasing Q1 earnings results from several large banks.

JPMorgan Chase (JPM), Citigroup (C), BlackRock (BLK), and PNC Financials (PNC) were among the top performing stocks Friday, driving a 1.1% gain in the S&P 500 financial sector.

While the financial sector was providing support for the broader market, mega cap losses offset much of that support and drove a lot of the index level weakness. Names like Meta Platforms (META), Amazon.com (AMZN), and Alphabet (GOOG) were able to recover their losses and finish with at least a modest gain. This coincided with the broader market rebounding from its lows of the day.

In addition to pressure from mega cap stocks, investors were reacting to Fed Governor Waller’s (FOMC voter) remarks in a speech before the open that the Fed hasn’t made much progress on its inflation goal and that he thinks monetary policy needs to be tightened further and remain tight for a substantial period of time. Also, some added selling pressure kicked in after the preliminary University of Michigan Consumer Sentiment Index for April at 10:00 a.m. ET showed year-ahead inflation expectations rising to 4.6% from 3.6%.

The Dow Jones Industrial Average (-0.4%) was a relative underperformer among the major indices Friday, feeling the pinch of sizable losses in Boeing (BA) and UnitedHealth (UNH). BA declined on reports it expects production and delivery delays for its 737 MAX due to parts problems while weakness in UNH stemmed from investors’ concerns about meeting short and long-term EPS targets in the face of Medicare Advantage changes.

Reviewing Friday’s economic data:

• Total retail sales declined 1.0% month-over-month in March (Briefing.com consensus -0.4%) following an upwardly revised 0.2% decline (from -0.4%) in February. Excluding autos, retail sales were down 0.8% month-over-month following an upwardly revised unchanged reading (from -0.1%) in February.
  • The key takeaway from the report is that sales declines were seen across most retail categories, reflecting weakness in consumer spending on goods that should exacerbate concerns about an economic slowdown that cuts into earnings prospects.
• Import prices declined 0.6% month-over-month and were down 4.6% year-over-year. Excluding fuel, import prices were down 0.5% month-over-month and down 1.5% year-over-year. Export prices fell 0.3% month-over-month and were down 4.8% year-over-year. Excluding agricultural products, export prices were down 0.2% month-over-month and were down 5.2% year-over-year.
• Total industrial production increased 0.4% month-over-month in March following an upwardly revised 0.2% increase (from 0.0%) in February. The capacity utilization rate jumped to 79.8% following an upwardly revised 79.6% (from 79.1%) in February.’
  • The key takeaway from the report is that the entire gain in industrial production in March was driven by the increased output of utilities, which is to say the headline print belies an otherwise soft environment for manufacturing output.
• Business Inventories rose 0.2% in February following a revised 0.1% decrease in January (from -0.1%).
• The preliminary University of Michigan Consumer Sentiment Index for April checked in at 63.5 versus the final reading of 62.0 for March. In the same period a year ago, the index stood at 65.2.
  • The key takeaway from the report is that short-run inflation expectations were up noticeably from the prior month, which is something that could compel the Fed to press ahead with another rate hike in May even though long-run inflation expectations remained stable.

Source: Briefing Investor