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Nasdaq, S&P 500 down; Dow up; transports outperform
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Commun. services weakest S&P 500 sector; energy leads
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Dollar, bitcoin gain; gold, crude fall
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U.S. 10-Year Treasury yield rises to ~3.41%
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SO WHAT DO CONSUMERS THINK? (1228 EDT/1628 GMT)
With investors worrying about potential tightening in bank lending standards and the economy, Morgan Stanley asked about 2,000 consumers about their confidence and spending plans in a monthly survey conducted March 31-April 3. According to a summary, more than 25% of consumers say they are likely to apply for a new credit card in the next six months. But, among higher income households (making $100,000 plus), the percentage increased to 41%.
After asking about different types of loans, MS found consumers most confident of approval for a new credit card, at 13% on a net basis, looking at the spread between those that are confident and those that aren't. And they are least confident of approval for a mortgage, it said.
New credit cards and increases in the credit limit of existing cards "are the only types of loans consumers believe they can afford," according to MS.
It notes a higher percentage of consumers believed they
cannot afford a mortgage, at 12% net, versus an auto loan, at 5%
net, or a personal loan, at 4% net.
As might be expected, views on affordability varied hugely
by income level, with high-income consumers confident in their
approval for and ability to afford any type of loan, while
consumers making less than $50,000 were not confident they'd be
approved for or able to afford any type of loan.
While consumers are still intending to travel, they are budget conscious, with nearly one third saying they expect to spend less on travel, and only slightly more than a quarter saying they expect to spend more than last year. Still 6/10 respondents plan to travel in the next six months, in line with 2021 expectations and up slightly from 57% last year.
As for the economy, 27% see the economy improving in the next six months, down from 34% last month, while 50% expect the economy to get worse, up from 46% last month, according to MS. In addition, 60% said they are likely to cut spending in the next six months due to inflation and plan to use savings and credit. Restaurants are "most at risk of a consumer pull back." MS said 62% of consumers cite inflation as their top concern, in line with last month but lower than 64% at the end of November, while the U.S. political environment is the second-biggest concern, cited by 39% versus 36% last month. About a quarter of respondents expressed concern about their ability to pay their rent or mortgage and to repay debts, similar to previous surveys.
(Sinéad Carew)
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BAD NEWS IS BAD NEWS WHEN STARING A RECESSION IN ITS FACE (1110 EDT/1510 GMT) The Fed is often referred to as being "data dependent." However, as Philip Palumbo, founder, CEO and chief investment officer at Palumbo Wealth Management, sees it, data is not always clear cut. According to Palumbo, while most other indicators were pointing toward recession, the labor market has remained stubbornly strong and the Fed chose to focus on the labor data. As a consequence, interest rates would need to be raised until the employment shortage, and related wage pressure, subsided.
Then, last week, the data changed because that continuing flow is subject to revision. Now it appears that the labor data was not very accurate in the first place and, therefore, the Fed may have made an error in raising interest rates so far, so fast. "While the Fed was watching jobless claims trend down, implying a strong economy, the revised jobless trend has actually been moving up since last October. And of course, the Fed’s continued aggressiveness in raising rates since October has not only contributed to the recent banking turmoil, it has added pressure on an already weakening economy," writes Palumbo in a note.
Palumbo admits that jobless claims are far from new highs, but now the trend appears to be very different than implied by the original data.
This raises the risk that the Fed has pushed too hard to slow down the economy, heightening the risk of recession. The evidence of this, Palumbo says, is that last week, for the first time in a long time, bad news for the economy was bad news for markets too.
"For quite some time, markets would reflexively move higher on bad economic news in anticipation of interest rate cuts. The difference today is that we are staring a recession in the face and that makes bad news, bad news."
(Terence Gabriel)
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NASDAQ DOWN MORE THAN 1% EARLY (1020 EDT/1420 GMT) U.S. stock indexes are mostly lower in early trading Monday, with the Nasdaq down more than 1% as recent data suggesting a resilient jobs market fanned worries about how much longer the Federal Reserve may need to raise interest rates. The data - released Friday when the market was closed for the Good Friday holiday - showed a strong pace of hiring in March and a drop in the unemployment rate to 3.5%. The S&P 500 technology index is also down more than 1% early, and was among sectors leading declines. Investors have been trying to gauge how much longer the Fed will need to raise rates to cool inflation and the labor market is a big part of the equation.
They will also closely watch the consumer prices data on Wednesday for further clues about inflation. Here is the early market snapshot:
(Caroline Valetkevitch)
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INDIVIDUAL INVESTOR BULLS AND BEARS CONVERGE -AAII (0900 EDT/1300 GMT) Pessimism among individual investors collapsed, while optimism jumped in the latest American Association of Individual Investors (AAII) Sentiment Survey released last week. With this, neutral sentiment slipped.
AAII reported that bearish sentiment, or expectations that stock prices will fall over the next six months, tumbled 10.6 percentage points to 35.0%, putting it at a seven-week low. Still, bearish sentiment remains above its historical average of 31.0% for the 67th time out of the past 72 weeks.
Bullish sentiment, or expectations that stock prices will rise over the next six months, surge 10.8 percentage points to 33.3%. However, bullish sentiment is still below its historical average of 37.5% for the 70th time out of the past 72 weeks.
Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, edged down by 0.3 percentage points to 31.6%. Neutral sentiment is above its historical average for the 13th time out of the past 14 weeks.
With these changes, the bull-bear spread increased 21.4 percentage points to -1.7 percentage points from -23.1 percentage points the prior week:
AAII said that "the improvement in optimism occurred as the S&P 500 index bounced back from its recent lows. In addition, individual investors mostly approved of the smaller interest rate hike announced by the Federal Reserve a few weeks ago."
Of note, however, AAII asked its members how recent headlines on banks have affected their six-month outlook for stocks. The largest cadre of respondents, 41.5%, said it was making them "more cautious."
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
