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Main U.S. indexes end mixed: DJI, S&P 500 rise, Nasdaq
dips
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Energy leads S&P 500 gainers; real estate weakest group
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Dollar, bitcoin lower; gold up, crude rallies >6%
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U.S. 10-Year Treasury yield falls to ~3.42%
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U.S. STOCKS TURN IN A MIXED UP MONDAY (1605 EDT/2005 GMT) Wall Street ended mixed on Monday as rising oil prices rekindled worries about interest rate hikes, while Tesla tumbled after its electric vehicle deliveries for the first quarter disappointed investors. Indeed, energy was the day's star performer, rising nearly 5%. This, on the back of a more than 6% jump in NYMEX crude futures . The energy sector has now risen seven-straight sessions. That's it's longest winning streak since an eight-day run of gains with the Russian invasion of Ukraine in late-February to early-March of last year. Energy last rose nine-days in a row in October 2009, so the current rally may be getting stretched. In any event, perhaps given that the Fed has tended to emphasize core inflation readings, ex-food and energy, it wasn't all doom and gloom on the day. The DJI and S&P 500 both rose for a fourth-straight day, and a majority of SPX sectors ended in positive territory. Nasdaq ended modestly lower, while transports were among weaker groups. To kick off the week, growth is back on the horse vs value . Growth ended a five-week win streak vs value last Friday. However, the growth/value ratio ended higher on Monday for a third-straight day. This as the U.S 10-Year Treasury note futures rallied sending the yield down toward 3.40%. Here is a snapshot of where markets stood just shortly after the 4 PM close:
(Terence Gabriel)
*****
THERE IS NO BANKING CRISIS. BCA SAYS FEARS ARE OVERDONE
(1331 EDT/1731 GMT)
Recent regional bank failures have not spiraled into a
banking crisis and investors in the near-term are likely too
bearish on the outlook, according to BCA Research.
Investors fled stocks and sought out safe haven U.S.
government bonds after the collapse of Silicon Valley Bank and
Signature Bank in mid-March raised concerns of a widespread
banking crisis.
However, Doug Peta, chief U.S. investment strategist at BCA
said that this hasn’t occurred, and that the outlook for stocks,
at least near-term, remains positive.
“The media is frothing at the mouth over banking turmoil,
but evidence of a crisis is elusive,” Peta said in a report.
“Credit remains available from banks, capital markets and
private investment pools; the S&P 500 has advanced 5% in the
three weeks since Silicon Valley Bank failed and the VIX is back
in the 18s.”
Peta notes that banking crises are fanned by fear, and this
appears to have peaked. S&P 500 sector performance since the
failure of SVB also does not suggest widespread risk aversion,
with defensive stocks failing to outperform as a group, and
continuing to lag “appreciably” on a year-to-date basis.
Meanwhile, “the Real Estate sector edged above its March 9
close despite ubiquitous worries about commercial real estate
and even large-cap banks gained 5% last week,” Peta said.
Peta expects the S&P 500 to generate positive excess returns
over Treasuries and cash in the first half of the year and
anticipates a “meaningful rally” that could push the index into
the mid-4,000s. He remains “pessimistic about equities’
prospects a year into the future,” however.
(Karen Brettell)
*****
WILL AN OIL PRICE SURGE MEAN A MORE AGGRESSIVE FED? (1237 EDT/1637 GMT) Oil prices jumped on Monday after a surprise announcement by OPEC+ to cut more production while Treasury yields also briefly moved higher as investors focused on what this will mean for further rate hikes by the Federal Reserve. Benchmark 10-year U.S. Treasury yields reached 3.545% while interest rate sensitive two-year yields rose to 4.139%, though both have since given up the gains on weak U.S. manufacturing data. “The inflationary implications for the global economy are relatively straightforward and the weakness in Treasuries followed intuitively. The front-end of the market absorbed the brunt of the downtrade as investors linked elevated headline inflation risk to a higher probability of 1) a 25 bp hike in May and/or 2) galvanized commitment on the part of the FOMC to keep terminal in place for an extended period,” BMO analysts Ian Lyngen and Benjamin Jeffery said in a note. Fed officials in recent days have stressed the need to continue to battle inflation even as markets price in rate cuts this year.
The yield curve between two-year and 10-year yields inverted further to minus 62 basis points on the oil headlines, before steepening back to minus 57 basis points. “The curve flattening character of the moves reflects, at least on the margin, investors’ collective confidence in the Fed’s willingness to extend its endeavor to reestablish price stability. It’s also a vote of confidence in the effectiveness of the FOMC’s policy tools in curtailing realized inflation and thereby maintaining the anchor of inflation expectations,” BMO said. Fed funds futures traders see the Fed as modestly more likely to hike rates at its May 2-3 meeting, with a 65% probability, than leave them unchanged. Analysts note, however, that any hike will depend on economic data and whether there is any renewed stress in the banking system. Sustained oil price increases, if they occur, may complicate the picture for the Fed. Not all analysts, however, see it as a primary driver for rates. “We’re not bearish on oil, by any means, but it should not be in the top 5 of considerations for either the global economy or interest rates. It is not yet clear how or when Russian production may follow the cuts by Middle Eastern OPEC+ leaders,” Jim Vogel, an interest rate strategist at FHN Financial said in a note. Adam Hoyes, markets economist at Capital Economics, also noted that Monday’s manufacturing data is “a harbinger of weak economic data to come,” and that disinflationary pressures outside of the oil market are likely to pickup. “Consequently, we still expect the Fed to be turning its attention towards interest rate cuts by the end of the year, even if oil prices continue to rise,” he said.
(Karen Brettell)
*****
FACTORY FUNK: MANUFACTURING PMIS, CONSTRUCTION SPENDING (1110 EDT/1510 GMT) Monday data showed U.S. goods-makers are feeling the softening demand wrought by restrictive Fed policy, even as construction of manufacturing facilities surges.
U.S. factory activity showed a steeper-than-expected pull-back in March, contracting for the fourth month in a row to the lowest level since the immediate aftermath of the COVID shutdown. The Institute for Supply Management's (ISM) purchasing managers' index (PMI) landed 1.4 points lower than the February reading and 1.2 points to the south of consensus. A PMI number south of 50 signifies monthly contraction The crucial "new orders" component slid to 44, just one point above the level commonly associated with recession and the employment picture soured, dropping 2.2 points to 46.9. One ray of sunshine was provided by the prices paid index, which dipped into contraction - a good omen for inflation watchers. "With Business Survey Committee panelists reporting softening new order rates over the previous 10 months, the March composite index reading reflects companies continuing to slow outputs to better match demand for the first half of 2023 and prepare for growth in the late summer/early fall period," writes Timothy Fiore, chair of ISM's Manufacturing Business Survey Committee. Commentary from the survey's participants were a bag of glass-half-full/empty sentiment. Phrases such as "sales a bit down, and budgets being cut," and "sales are slowing at an increasing rate" are tempered with words like "input costs (are) falling" and "the overall supply environment is far better."
Here's a breakdown of the index and some of its components:
Not to be left out, S&P Global also released its final take on last month's manufacturing PMI , which came in at 49.2, just a shade lower than its 49.3 "flash" reading released a few weeks ago, but a modest improvement over February. The uptick as driven by improvement in production, employment and delivery times, but held in contraction territory by softening demand. "Although output rose for the first time since last October, growth was fractional, and largely supported by ramping up production following an unprecedented reduction in supply chain pressures," says Siân Jones, senior economist at S&P Global Market Intelligence.
"Sparse demand amid pressure on customer spending due to higher interest rates and inflation spoke to challenges ahead for goods producers if there is little change in domestic and international client appetite," Jones adds. The dueling indexes differ in the weight they allocate to their various components (e.g., new orders, employment). The graphic below shows the extent to which the two disagree:
Finally, there's good news and bad news regarding construction spending. Expenditures on U.S. construction projects unexpectedly dropped by a nominal 0.1% in February, according to the Commerce Department.
But that's on the heels of a rather large upward revision to the January print - to a 0.4% gain from a 0.1% decline. Digging beyond the headline, a 0.6% drop in outlays for residential projects more than offset a robust 2.7% increase in manufacturing facilities.
Spending on private projects was flat, while government expenditures on building projects dropped 0.2%. While softness on the residential side is likely an echo of the housing market's pandemic related boom and bust, "so far in Q1, construction spending is +3.5% q/q higher than the Q4 average,"
"The data show still-weak residential spending – although less so compared to Q4, but still-positive public and nonresidential construction spending so far in the first quarter," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
Wall Street is mixed in late-morning trading, with a more than 5% surge in crude prices giving energy names a comfortable lead among sector gainers. Mega-cap momentum stocks are clear laggards, pulling the Nasdaq into the red.
(Stephen Culp)
*****
EARNINGS, DATA COULD TEST STRENGTH IN FAANG STOCKS AFTER RECORD QUARTER [1044 EST/1444 GMT]
After a smooth Q1 for growth and technology stocks which drove record quarterly gains for the NYSE FANG+TM index , investors are now concerned that renewed inflation fears, upcoming economic data and the earnings season could test their strength.
The index, which includes Alphabet Inc , Tesla Inc and Apple Inc , slipped 0.9% after a near 40%
surge in the first quarter, as rising Treasury yields prompted a
rotation out of growth stocks into energy and financials.
Growth stocks have rallied since the start of the year on
hopes of smaller interest rate hikes by the Federal Reserve,
lifted further after the banking turmoil in March. The S&P 500
growth index is up 9.8% so far this year versus 7% gain
in the S&P 500 .
"This week's economic data could be a catalyst for Q1 market darlings, such as high PE semiconductor stocks, to take a haircut," Saxo's market strategist Jessica Amir said.
Key economic data this week include the JOLTS job openings on Tuesday and monthly payrolls report on Friday. Monday's figures showed U.S. manufacturing activity slumped to the lowest level in nearly three years in March as new orders continued to contract.
Most megacap growth and tech stocks edged lower on Monday,
with TSLA down 5.3% as worries on excess production overshadow
record deliveries.
"The real test is possibly still to come with the next set
of earnings updates, which will provide some clarity on whether
investors are still putting too high a value on big U.S. brands
at a time when the consumer is still under pressure," said Danni
Hewson, head of financial analysis at AJ Bell.
Constituents Q1
gains (%)
Apple Inc 26.9%
Amazon.com Inc 23.0%
Microsoft Corp 20.2%
Tesla Inc 68.4%
Alphabet Inc 17.6%
Advanced Micro Devices 51.3%
Meta Platforms 76.1%
Netflix Inc 17.2%
Nvidia Corp 90.1%
Snowflake Inc 7.5%
FANG+TM Index 39.2%
(Bansari Mayur Kamdar)
*****
U.S STOCKS MIXED, BUT ENERGY SHARES ON THE MOVE (1010
EDT/1410 GMT)
U.S. stock indexes are mixed early on Monday as rising oil
prices stoked concerns about more interest rate hikes from the
Federal Reserve to temper inflation, while a jump in shares of
energy firms helped stem losses.
Saudi Arabia and other OPEC+ oil producers announced further
output cuts of around 1.16 million barrels per day, threatening
an immediate rise in prices.
In any event, the DJI is jumping, while the S&P 500 is modestly higher. The Nasdaq is lower.
Energy is leading S&P 500 sector gainers higher with
a jump of more than 5%.
NYMEX crude futures are posting a more than 6% rise
and are back over $80. Of note, after finally flirting with its
200-week moving average in mid-to-late March, CLc1 has gained
more than 25%.
Here is an early trade snapshot:
(Terence Gabriel)
*****
CAN S&P 500 INDEX BUILD ON ITS TRENDLINE BREAKOUT? (0901 EDT/1301 GMT) The S&P 500 ended last week on a high note, rising for three-straight days, while closing at 4,109.31, which put it just slightly above the resistance line from its January 2022 record high:
That said, with e-mini S&P 500 futures dipping slightly in premarket trade, the SPX appears poised to pullback around 5 points at Monday's open.
Still, the broken resistance line should now attempt to act as support at around 4,098 on Monday. A resumption of strength should keep the S&P 500 focused on a key barrier that runs from 4,195.44 to 4,203.04. This zone also includes the 23.6% Fibonacci retracement of the March 2020-Janaury 2022 advance at 4,198.70. Since breaking back below this Fibonacci retracement on August 22 of last year, the SPX has managed by decimals, just one daily close back above this line. That was on August 25, one day prior to Fed-Chair Powell's especially hawkish August 26 Jackson Hole speech, which ultimately sent the SPX sliding to new lows. Strength into this year's early February high once again stalled as the benchmark index flirted with this resistance zone. Thus, traders remain keenly focused on this barrier to see if the SPX can ultimately breakout of its multi-month range to the upside. Quickly closing back below the broken trendline from the January 2022 high can put the SPX on the back foot again within the confines of its range. The next support is at the early and late-March highs at 4,078.49 and 4,049.49. The rising 50-day moving average should be just over 4,020 on Monday.
(Terence Gabriel)
*****
FOR MONDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
