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Main U.S. indexes decline: DJI off ~0.7%
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Industrials weakest S&P 500 sector; utilities lead gainers
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Dollar, crude dip; gold, bitcoin gain
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U.S. 10-Year Treasury yield slides to ~3.35%
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IS BITCOIN LIKE GOLD? (1312 EDT/1712 GMT) Bitcoin’s sharp rally since mid-March has left some investors confused, as the cryptocurrency has been volatile and is often considered a risky, rather than defensive, asset to hold. But analysts at Wells Fargo Investment Institute (WFII) say that the move makes sense, in part because the currency holds some of the same characteristics as gold. “Bitcoin, like gold, has a very limited supply. Loose monetary conditions generally lead to more fiat money chasing the limited supplies of gold and bitcoin,” they said. Another benefit of bitcoin is that its technology seeks to improve the current financial system, Wells Fargo noted, including through the “possession of one’s assets.” When some regional banks were closed in March it was difficult for customers to access their deposits and there were questions about the extent of insurance on customer deposits. “While bitcoin does not solve the problem of lost or uninsured deposits, as it can be lost and stolen too, it can be owned, stored, and controlled by its owner, without the need for a third party. In this way, we believe bitcoin is a bit like gold as it is held outside the traditional system for a rainy day,” the analysts said. Bitcoin was last just over $28,100 and is up from a two-month low of $19,569 on March 10, when U.S. regulators took over Silicon Valley Bank.
(Karen Brettell)
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BOFA SAYS TO GET DEFENSIVE, NOW IN DOWNTURN PHASE (1220 EDT/ 1620 GMT) Bank of America is warning investors to position defensively with the U.S. economy heading into a downturn, adding that recent efforts to stabilize banks has given investors “another opportunity today to take profits in overvalued bonds & stocks.” BofA analysts including Jared Woodard said in a report sent on Tuesday that after warning last month that credit conditions have tightened to levels that “always mean recession,” the bank’s US Regime Indicator has now moved to “Downturn.” “Assets that tend to perform best in downturn and recovery phases are defensive equities like staples (we favor IYK), small caps (CALF), value (VTV), corporate bonds (FALN), and gold,” they said. The bank says that a historical analysis shows that key signals ahead of recessionary bear markets are that the Treasury yield curve steepens, credit conditions tighten and the Federal Reserve is forced to cut, with the first two of these already having occurred. Investors should get defensive as the yield curve steepens, take profits as credit conditions tighten, and raise cash when the Fed first cuts rates, but this is not expected until next March as the U.S. central bank continues to focus on bringing down inflation, BofA said. BofA says its preferred positioning “for the next phase of this bear market” is to be long staples, and short tech. “Staples remain under-capitalized and should benefit from ‘trade-down’ effects as shoppers look for cheaper alternatives this year. Tech remains too expensive, too concentrated, and has only outperformed during two Downturn regimes: the dotcom bubble and Covid,” it said. In fixed income, the bank recommends corporate bonds, the VanEck Fallen Angel High Yield Bond ETF and iShares Fallen Angels USD Bond ETF in particular, and suggests gold for investors looking to build commodity exposure. BofA also says that investors should hold onto inflation hedges. “We expect energy, materials, industrials, and other businesses with real-asset exposure to remain valuable portfolio hedges as both structural and cyclical trends favor inflation-friendly assets,” the analysts said.
(Karen Brettell)
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TUESDAY DATA: A SPOONFUL OF MEDICINE HELPS THE SUGAR GO DOWN (1130 EDT/1530 GMT) Data released on this two-for-one Tuesday suggested the economic poison pill prescribed by the Federal Reserve is starting to pack a punch. But is that pill too poisonous? The number of unfilled jobs in the United States plunged by 6% in February to 9.931 million, the lowest number since May 2021. The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a gauge of labor market churn, also showed little change in hires and fires, but a modest uptick in the quit rate. But the plunging job openings is the star of this show, providing welcome news that cracks are beginning to appear in the tight labor market. Any cooling in worker demand would seem to portend continued deceleration of wage growth - a major inflation driver - and offer another welcome bit of evidence that Powell & Co's restrictive policies are slowly working their magic. But fears that the Fed's magic will conjure the specter of recession are growing. "Jobs are tightening and that means sooner or later we’re going to see a strong reversal in employment," says Peter Cardillo, chief market economist at Spartan Capital Securities in New York. "It means we’re not far from recession." "While some recent numbers suggest the economy could escape it, a global recession is still on the table," Cardillo added.
That's exactly what's expected from the March jobs report due on Friday. The consensus estimate shows hourly wage growth cooling on an annual basis to 4.3% from 4.6%. That report, which falls on a market holiday, is expected to have added 240,000 jobs last month, with the unemployment rate holding firm at 3.6%. Under the magnifying glass, job openings fell most in professional/business services, healthcare and transportation. But construction, arts/entertainment and recreation - saw increased openings.
It should be noted that the report covers a period prior to the recent skittishness over bank liquidity.
Separately, new orders from U.S. factories decreased by 0.7% in February, a bigger drop than the 0.5% projected by economists. This jibes well with the Institute for Supply Management's PMI data released on Monday, which showed U.S. factory activity contracted in March for the fifth consecutive month. New orders for core capital goods - which exclude aircraft and defense items, and are considered a barometer of U.S. business spending intentions - were revised to show a 0.1% dip, a reversal from the 0.2% gain originally reported.
While "bad news is good news" has been a recent mantra, today's bad news is bad news, as far as Wall Street is concerned. All three major U.S. stock indexes are now red, with cyclicals weighing heaviest.
(Stephen Culp)
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U.S. STOCKS JOLTED SLIGHTLY HIGHER IN EARLY TRADE (1008 EDT/1408 GMT) The S&P 500 is slightly green early on Tuesday as it digests the latest jobs data. February JOLTS job openings came in at 9.931M, well below the 10.4M estimate, and last month's 10.842M reading. The SPX was roughly flat just prior to the JOLTS release. It is now edging into positive territory. FANGs are on the plus-side, while banks are among weaker groups. The U.S. 10-Year Treasury yield is dipping, and growth is on track to outperform value for a fourth-straight session. Energy's seven-day win streak is in jeopardy. The sector is trading down nearly 1%. Meanwhile, it's a big week for employment data. Besides JOLTS, markets now await the latest ADP national employment data on Wednesday, jobless claims on Thursday, and then the March non-farm payroll report on Friday, which will be released with stocks closed for the Good Friday holiday.
Here is an early trade snapshot from around 1008 EDT:
(Terence Gabriel)
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S&P 500 ENERGY SECTOR ON FIRE (0900 EDT/1300 GMT) In the wake of the surprise OPEC+ output cut, crude oil is extending its gains on Tuesday.
Of note, the S&P 500 energy sector finished Monday higher for a seventh-straight session. The seven-day run of gains is the sector's longest win streak since eight-straight days 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 on a daily basis. Additionally of note, energy ended March above its rising 12-month moving average (MMA) for a 28th-straight month:
Through March, the 28-month run of monthly closes above the 12-MMA is the sector's longest such streak since a 62-month run which ended just after the summer 2008 peak.
Energy scored 26-straight monthly closes above its 12-MMA just after its June 2014 record highs. With Monday's 666.07 close, the group faces resistance at its 2008 high at 678.84 and its 2022 and 2014 highs in the 724.74-738.71 area. A monthly close below the 12-MMA, now around 635, can suggest potential for a much more protracted reversal. Meanwhile, crude futures , now around $81.00, have mounted an impressive rally, and are attempting to close above resistance at $80.31. This after falling to a low of $64.12 in March, while finally testing a long-term magnet in the form of the 200-week moving average, which now resides around $66.45. With additional major support in the $65.25-$63.35 area, crude used the area as a launching pad. That said, another major barrier resides in the $89.03-$90.19 area.
(Terence Gabriel)
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FOR TUESDAY'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)
