*
Main U.S. stock indexes red: Nasdaq off ~1%
*
Real estate weakest S&P 500 sector; financials sole gainer
*
Dollar, crude up; bitcoin slips; gold slides
*
U.S. 10-Year Treasury yield rises to ~3.52%
Welcome to the home for real-time coverage of markets brought to
you by Reuters reporters. You can share your thoughts with us at
COMPANY OUTLOOKS IN FOCUS IN WAKE OF WEAK DATA (1331 EDT/1731 GMT) Recent weakness in U.S. manufacturing and services reports and recent turmoil in some banks suggest investors may expect to also see some weak guidance from U.S. companies this quarterly reporting period given that earnings and the economy are so closely connected, Jeffrey Buchbinder, chief equity strategist for LPL Financial in Boston, wrote in a note this week. "Tightened financial conditions in the wake of last month's banking turmoil and building evidence for a slowing economy has changed the economic backdrop this quarter," Buchbinder wrote. "It will be interesting to see how management teams react to these latest developments." The most recent reading in the services report from the Institute for Supply Management (ISM) "implies a weakening outlook for both businesses and consumers," he noted. The earnings season kicked off Friday with mostly upbeat results from JPMorgan Chase & Co and other major U.S. banks, while regional bank PNC Financial Services Group Inc posted a quarterly profit beat but missed expectations on net interest income. Investors have been eagerly anticipating results from banks following the collapse of two regional banks in March.
(Caroline Valetkevitch)
*****
INDIVIDUAL INVESTOR BULLS BACK OFF -AAII (1215 EDT/1615 GMT)
Optimism among individual investors plunged in the latest
American Association of Individual Investors (AAII) Sentiment
Survey. With this, pessimism slipped, while neutral sentiment
jumped.
AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, slid 7.2 percentage points to 26.1%. After moving closer to its average last week, optimism has pulled back to an "unusually low level." Bullish sentiment remains below its historical average of 37.5% for the 71st time out of the past 73 weeks. Bearish sentiment, or expectations that stock prices will fall over the next six months, edged down 0.5 percentage points to 34.5%. "After a stretch of being unusually high, pessimism has been reverting closer to its average." However, bearish sentiment is still above its historical average of 31.0% for the 68th time out of the past 73 weeks. Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, gained 7.9 percentage points to 39.5%. Neutral sentiment is above its historical average for the 14th time out of the past 15 weeks.
With these changes, the bull-bear spread decreased 6.7 percentage points to –8.4 percentage points from -1.7 percentage points last week. "This puts the bull-bear spread back at an unusually low level":
(Terence Gabriel)
*****
DATA PARADE: RETAIL SALES, UMICH, INDUSTRIAL OUTPUT, ETC. (1115 EDT/1515 GMT) Investors ran a gauntlet of mixed economic data on Friday as they stumbled toward the finish line of a tumultuous week. Receipts at U.S. retailers dropped by 1% in March, a steeper drop than the 0.4% dip analysts projected, according to the Commerce Department. Digging beneath the headline, a 5.5% plunge at gasoline stations, a 2.5% slide at department stores and a 1.6% drop at carlots was mitigated by a 1.9% increase in non-store retailers, which is dominated by online spending. The common theme is consumers mostly tightened their purse strings on the more expensive items. Aside from autos, home furnishings, building materials, and electronics/appliances all dropped 1% to 2%. This suggests tighter credit conditions and rising interest rates resulting from what has become a full year of Fed tightening. "Households are clearly feeling the pinch from rising interest rates and the extended period of high inflation and are reducing expenses to compensate," writes Ben Ayers senior economist at Nationwide. "While job and income gains remain strong, the cracks in the consumer sector are widening and a negative shift in hiring activity could be the final blow to place the economy in a recession." The core measure, which excludes autos, gasoline, building materials and food services - and is most closely correlated with the consumer spending element of GDP - stuck the consensus landing by decreasing 0.3%. Speaking of the consumer, the University of Michigan's (UMich) preliminary take on April consumer sentiment showed an unexpectedly sunnier - or, less cloudy - mood. The overall score rose 1.5 points to 63.5 instead of holding firm at 62 as analysts predicted. The current conditions component jumped 2.3 points and near-term expectations increased by a less enthusiastic 1.1 points. But while 5-year inflation expectations (helpfully included in the retail sales graphic above) remained at 2.9%, consumers expect price growth to be 4.6% a year from now, a full percentage point hotter than last month's take. "Uncertainty over short-run inflation expectations continues to be notably elevated, indicating that the recent volatility in expected year-ahead inflation is likely to continue," says Joanne Hsu, director of UMich's consumer surveys. Nice segue, Ms. Hsu. A report from the Labor Department shows the cost of goods and services imported to the United States dropped by 0.6% last month, double the 0.3% dip expected. Year-on-year, import prices have fallen deep into deflationary territory, down 4.6% - the steepest annual plunge since May 2020. "We still expect the Fed the raise rates in May, but the import price report marks another encouraging datapoint after this week's CPI and PPI reports," says Matthew Martin, U.S. economist at Oxford Economics. "Lower import prices will support weaker goods inflation in the months ahead."
The data is the outlier among other major indicators, as foreign exchange rates add to the volatility. But combined with wage growth, CPI and PPI, it offers another welcome piece of evidence that inflation is headed in the right direction. In a seeming contradiction to everything else, industrial production increased in March by 0.4%, double the rate economists predicted and accelerating February's upwardly revised gain. But underneath the Federal Reserve's topline number, the 8.4% surge in utilities output - boosted by some nasty weather last month - masked a 0.5% drop in manufacturing, including a fairly steep 1.5% slide in auto production. "The rapidly softening trend in the monthly numbers, together with grim survey data, make a return to outright declines all-but inevitable over the next couple quarters," says Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics. Capacity utilization , a measure of economic slack, landed at 79.8% - well above expectation - primarily due to a sharp upward revision of the February data. Finally, in ancient history, the value of goods stacked in the store rooms of U.S. businesses increased by a weaker-than-expected 0.2% in February, reversing January's 0.2% move in the opposite direction, according to Commerce Department.
(Stephen Culp)
*****
U.S. INDEXES EDGE DOWN IN CHOPPY TRADING, BUT BANKS RALLY (1022 EDT/1422 GMT) Major U.S. stock indexes are easing in choppy early trading Friday, but financials are limiting losses in the S&P 500 as shares of JPMorgan Chase and other banks rally following their quarterly results. However, data showing U.S. retail sales fell more than expected in March suggested the economy was losing steam at the end of the first quarter. Investors have been worried that aggressive rate hikes will at some point push the U.S. economy into recession. JPMorgan shares are last up about 7% and the S&P 500 banks index is up about 3%. JPMorgan's first-quarter profit beat Wall Street estimates, and the biggest U.S. lender remained resilient through the banking crisis in March. In addition, Citigroup Inc's first-quarter profit beat Wall Street expectations and its shares are up 2.7% Bucking the trend, shares of Wells Fargo & Co are down 0.4% after the company beat profit expectations for the first quarter, while executives said the U.S. economy is strong but expected to slow in response to tighter monetary policy. The quarterly reports kicked off the first-quarter earnings season for S&P 500 companies. Here is the early U.S. market snapshot:
(Caroline Valetkevitch)
*****
GREAT EXPECTATIONS, NO MONEY: BIOTECH 20 YEARS AFTER FIRST HUMAN GENOME SEQUENCING (0950 EDT/1350 GMT) Twenty years ago, on this very same day, the make up of the human genome was successfully charted out for the very first time, opening the doors to a flood of breakthrough research on therapies targeting genes to prevent or treat ailments. Fast forward to 2023 and a number of gene therapies, including Bluebird Bio's recently approved Zynteglo are now on the market for a hefty price. While innovation, particularly in the gene therapy space is in full swing with many drug candidates under study, biotech companies are facing a severe funding crunch, thanks to surging interest rates which have crimped valuations. UBS analysts believe there is near-term risk but the lower valuations present an attractive entry point for long-term investment in the biotech sector. Along with gene therapies, early-stage viral disease treatments are an attractive space, the analysts said, noting applications beyond COVID-19. "Many of these ventures seek to address diseases with no current treatments, offering investors a chance to align their portfolio with purpose and impact," they wrote in a research note on Friday, also highlighting the non-cyclical nature of biotech. Private markets are a good way to tap into the investment opportunity, though it comes with risks, such as an illiquid market, according to UBS. The analysts also highlight the importance of diversification across companies in the sector, given the high likelihood of failure for drug developers that do not have successful clinical trials. Biotech stocks have stabilized after a tumultuous March marked by a banking crisis following the collapse of regional lender Silicon Valley Bank which did business with many U.S. biotech companies. The SPDR S&P biotech ETF is up 3.6% in April after logging its worst monthly loss in nearly one year in March.
(Amruta Khandekar)
*****
UNDER MARGIN PRESSURE, HIGH QUALITY VALUE STOCKS IN DEMAND (0940 EDT/1340 GMT)
An uncertain macroeconomic landscape and higher costs cutting into company earnings means value-focused investors looking for "high quality" stocks will have to be more selective, according to Sean O'Hara, president of Pacer ETFs. Companies in the technology, consumer discretionary and financial sectors will likely see the most pressure, O'Hara told the Reuters Global Markets Forum.
"The market overall is still trading above its historical average, if we see slowing of earnings, and any sort of recession, multiples will likely still need to come down," he said.
With that in mind, Pacer's core value-focused funds are overweight energy, health care, materials, and industrial stocks, as companies in these sectors are exhibiting better free cash flows, often trading at a discount and will be less susceptible to margin pressure, he said.
Overall, "high quality" ETFs tracking companies with high cash flows and low debt are in demand, with the sector seeing $12 billion in net inflows in the first quarter of 2023, versus just $680 million the year before, according to CFRA Research data.
However, O'Hara notes that global and international markets are potentially better value bets right now that the U.S., trading at cheaper valuations.
Pacer's Global Cash Cows Dividend ETF and Developed Markets International Cash Cows are up 10% and 12% respectively year-to-date, versus a rise of about 3.6% for its U.S. Cash Cows 100 fund .
That's as value stocks in the Russell 1000 are up just over 1.7% this year, lagging both the S&P 500's 8% rise and Russell 1000 growth index's 14% jump.
(Lisa Mattackal)
****
THE FOUR HORSEMEN OF RECESSION, ACCORDING TO CREDIT SUISSE (0906 EDT/1306 GMT)
Credit Suisse strategists now see recession risk in the U.S. rising to 80% over the next 12 months, up from its previous estimate of about 60% by the first quarter of 2024. It points to the Federal Open Market Committee minutes remark from this week, "the staff projection at the time of the March meeting included a mild recession starting later this year."
The New York Fed model, which uses the yield curve, is at levels which have always been followed by a recession, the strategists note. The New York Fed model currently signals a recession at the latest by first-quarter of 2024. Credit Suisse says tightening of bank conditions is consistent with a recession. Strategists believe lending conditions are only going to tighten more. Small U.S. banks are set to face stricter regulation, declining net interest margins, and most banks might soon have to match their assets and liabilities more closely.
The strategists believe real money supply in both the U.S. and euro zone is at levels in tune with a recession.
Credit Suisse points out that economic lead indicators are consistent with a 2% contraction in GDP.
But both the global and European cyclicals are way off the base when it comes to pricing in the recession, Credit Suisse notes. European cyclicals are still pricing in about 3% of GDP growth and global cyclicals about 3.4% of GDP growth.
An analysis from Refinitiv this week said that the first-quarter reporting season is likely to mark a second straight quarterly earnings decline for S&P 500 companies. Wells Fargo strategists have also warned of an earnings recession in the near term. (Vansh Agarwal)
****
GOLD NEARS ITS RECORD HIGHS (0900 EDT/1300 GMT) Amid this year's dollar decline, drop in yields, and recent banking turmoil, spot gold is posting a gain of about 11% for the year. On Thursday, the yellow metal hit a high of $2,048.71, which was only around 1% shy of its record intraday high. It closed Thursday at $2,039.735:
On March 8, 2022 gold hit an intraday high of $2,069.89. Its Aug. 7, 2020 record intraday high was $2,072.4951. On a daily closing basis, gold ended at $2,052.41 on March 8, 2022 and $2,063.1875 on Aug. 6, 2020. Despite its recent gains, gold's weekly relative strength index (RSI), at just over 74, has yet to surpass its early 2023 high, at 79.387, putting traders on alert. A sudden reversal will have the potential to solidify a bearish divergence. Gold is trading off around 0.8% on Friday. On new highs, gold will face a weekly resistance line from its 2011 high which now resides around $2,120. Meanwhile, despite gold flirting with record highs, gold stock indexes remain well below their peaks. The Philadelphia Gold/Silver index , an index of 30 precious metals mining companies, is still down about 38% from its late-2010 record intraday high.
(Terence Gabriel)
*****
FOR FRIDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Gold04142023 High quality vs value stocks Early snapshot Retail sales and inflation UMich Inflation Industrial production AAII04142023B ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
