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Main U.S. indexes end mixed, little changed
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Industrials lead S&P 500 sector gainers; healthcare
weakest
group
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Dollar dips; crude edges down, gold rises; bitcoin gains
~2.6%
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U.S. 10-Year Treasury yield edges down to ~3.58%
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U.S. STOCKS END LITTLE CHANGED AND COILED UP (1601 EDT/2001 GMT) Major U.S. stock indexes finished mixed and little changed on Tuesday as disappointing quarterly reports from Johnson & Johnson and Goldman Sachs were countered by gains in some big technology stocks as first-quarter earnings season kicked into gear. With the market settling, the S&P 500 index is up just 0.08% at 4,154.74. Meanwhile, it was another relatively narrow trading session. The SPX's intraday range as a percentage of the prior day's close was just 0.7%. That's the sixth-tightest reading so far this year. The 2023 average is 1.34% per session. The six-narrowest readings by this measure have occurred since late March, and three of those sessions have happened over the past week, including last Tuesday, and now Monday and Tuesday of this week.
Last Tuesday was the tightest reading since the post-Thanksgiving holiday shortened session on Nov. 25 of last year. With this, SPX volatility close-to-close has now collapsed to its lowest level since late-November 2021, suggesting pressure is building for much more spirited action.
This, as the S&P 500 index continues to flirt with cloud resistance at 4,155.
Here is a snapshot of where markets stood just moments after the 4 PM EDT close:
(Terence Gabriel)
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SEARCH AND DISRUPT (1330 EDT/1730 GMT) New AI-driven technology that has been added to Bing has moved Microsoft's search product from "also ran" to legitimate contender, and Mike O'Rourke, chief market strategist at JonesTrading, says that, reportedly, Google has gone into panic mode.
"We think that is an appropriate response in a world where
only the paranoid survive," writes O'Rourke in a note.
As O'Rourke sees it, there tends to be little middle ground
between "oligarchical omnipotence and disruptive destruction."
Indeed, one only has to look back at the demise of once
dominant players such as Yahoo in search, MySpace in social
networking, and Blackberry in commercial smartphones for
examples of the destruction side of things.
O'Rourke outpoints that the iPhone debuted in 2007, and that
BlackBerry shares peaked in 2008. But he adds that Blackberry's
revenues did not peak until 2011.
Furthermore, he says that as Blackberry's revenues tripled
from 2008 to 2011, its shares lost 75% of their value. This,
perhaps, because, he says it's hard to identify existential
threats in the tech space that lead to disruptive destruction,
but when they do build, they can be a tsunami.
O'Rourke believes it's too early to know if this new
incarnation of Bing presents such a case, but he thinks the
potential is there.
"Google's warranted panic highlights that Microsoft is
benefiting from technology it is licensing, but can Microsoft
monetize search as effectively as Google has? Google has equally
smart people answering the wake up call."
In any event, a potential takeaway for O'Rourke is that
"maybe Trillion megacaps should not warrant 20x to 30x multiples
if the oligopoly is not quite as clear as it once was."
(Terence Gabriel)
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U.S. DOLLAR ENTERING MULTI-YEAR STRUCTURAL DECLINE (1215 EDT/1615 GMT)
The U.S. dollar has retraced gains in March as economic data started to exhibit a slowdown, even as the Federal Reserve waited to see whether tighter credit conditions could do what rate hikes are supposed to do in slowing the economy.
BNP Paribas, in a research note, writes that it expects dollar weakness to continue, adding that the currency is entering a multi-year structural decline.
The dollar index posted a monthly loss of 2.3% in March after gains of 2.8% in February. BNP notes that along with positive yields outside the U.S. and a more hawkish European Central Bank, these factors should trigger further repatriation of funds by European and Japanese investors into their home countries, who have been overweight U.S. assets for much of the past decade. "We expect the rotation out of U.S. debt to continue, as well as a near-term move out of equities as Value should outperform Growth this year, which would further weaken the U.S. dollar," BNP writes. In a global-risk event, the French bank believes the dollar will strengthen due to safe-haven demand, but gains will be limited after the Fed last month made the central bank liquidity swap lines available daily. "This highlights that the Fed is acting pre-emptively, rather than reactively, in handling tight U.S. dollar liquidity, which should limit any potential dollar surge," BNP says. It sees euro/dollar rising to $1.14 and dollar/yen declining to 127 yen.
(Gertrude Chavez-Dreyfuss)
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BRACING FOR NEGATIVE Q2 GROWTH, RECESSION (1120 EDT/1520 GMT)
The first quarter could register some growth for the U.S. economy, but the second quarter could be a different story.
Steven Blitz, managing director and chief U.S. economist at TS Lombard writes in a research note that he expects negative growth in Q2, with recession to start by mid-year. He notes that manufacturing production peaked last April, while real discretionary retail spending fell month-over-month in four of the last five months. Add these to the mix: weakening trends in hiring, small banks shrinking their balance sheets, large banks rearranging assets to favor reserves over loans and the expected 25 basis-point Fed hike next month. And you have the ingredients for negative growth, Blitz says. The bond market, on the other hand, has been flagging recession since July of last year, with the inversion of the U.S. Treasury two-year/10-year yield curve. Blitz notes that the curve tends to flip positive in the month that unemployment rises.
In the current cycle, he says the yield curve saw the most deeply inverted level in March of about -111 basis points. Assuming this peak inversion level holds, Blitz writes that May is pinned as the first month of rising unemployment, perhaps as late as July. He notes that a July start for rising unemployment would be in line with his call for a mid-year start to the recession. "In sum, weaker data continue to accumulate and the bond spreads suggest the same – though still fear more hikes... It is not yet a recession, but the trend towards one is being aided and abetted by contracting small bank balance sheets, especially for Main Street, and large bank balance sheets shifting assets from loans to reserves."
(Gertrude Chavez-Dreyfuss)
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SPLIT LEVELS: HOUSING STARTS, BUILDING PERMITS (1055 EDT/1455 GMT) The housing market has been teeter-tottering between boom and bust and back again, as the pandemic-driven suburban house grab drove inventories into the dirt and launched home prices to the moon. Add rising mortgage rates to the mix and the demand bubble rapidly deflated.
Groundbreaking on new U.S. homes dipped 0.8% in March to 1.42 million units at a seasonally adjusted annualized rate (SAAR), according to the Commerce Department, landing a tad north of the even 1.4 million SAAR consensus.
Building permits , among the more forward-looking housing market indicators, plunged 8.8% to 1.413 million units SAAR undershooting analyst expectations by 2.6%. A closer look the data show starts and permits for single-family homes actually increased, by 2.7% and 4.1%, respectively. This was offset by multiple unit projects, which saw starts fall by 5.9% and permits plunge by a whopping 22.1%. Part of the decline in condominium projects could be attributable to lowered expectations for a post-COVID mad stampede back to the city, it is also likely that tighter credit conditions - exacerbated by restrictive Fed policy and the regional bank liquidity crisis - have severely dampened speculative building. But recent shoots of green - an uptick in February sales, easing mortgage rates, less gloomy homebuilder sentiment among them - have suggested the housing market could be settling into its foundation. "Mortgage rates have pulled back from the peaks in October/November, helping to provide a jolt to demand and sales activity," writes Ben Ayers, senior economist at Nationwide. "But the environment remains challenging with high input and labor costs for builders and expensive financing options for buyers." "We expect starts to trend downward in coming months as buyers contend with elevated mortgage rates and building concerns of a recession on the horizon," Ayers adds.
The housing market has been in the Fed's sights for sometime, with Chairman Jerome Powell warning of a "housing correction" back in September. The sector's supply/demand imbalance has been worrisome for the central bank, as it keeps "owner's rent equivalent" element of CPI elevated, and that's one of the stickier inflation indicators. On April 12, the March CPI showed owner's rent equivalent having surged 8.1%, year-over-year. Here's a housing data dashboard - a one-stop shopping graphic of key indicators, including building permits. Of note, since the March 23, 2020 nadir of the COVID crash, the Philadelphia SE Housing index has outperformed the broader S&P 500 by an impressive 64.8 percentage points (click to enlarge):
Later this week, mortgage demand and existing home sales data will provide a few more bricks to the building.
(Stephen Culp)
*****
S&P 500, NASDAQ HIT MORE THAN 2-MONTH HIGHS, DJI SLIPS (0943 EDT/1343 GMT) The main U.S. indexes are mixed early on Tuesday as market players digest earnings reports from Johnson & Johnson, Bank of America, and Goldman Sachs. Additionally, signs of an uneven economic recovery in China and prospects of more Federal Reserve interest rate hikes are weighing on sentiment. Recent data has suggested that China's economy is rebounding after disruptions caused by the sudden lifting of COVID-19 curbs in December, led by consumption, services and infrastructure, but easing inflation and surging bank savings are raising questions over the strength of domestic demand. In any event, the S&P 500 and Nasdaq have both hit more than two-month highs in early trade, with chip stocks showing strength. GS and JNJ are the two biggest drags on the DJI . The blue-chip average is slightly red.
Here is an early trade snapshot:
(Terence Gabriel)
*****
DOW INDUSTRIALS: TRYING TO MAKE THE LEAP (0900 EDT/1300 GMT) Since forming what appeared to be a bullish pennant earlier this month, the Dow Jones Industrial Average has thrust to the upside and is now attempting to make the leap over trend line resistance from its record high:
The resistance line from the Dow's January 2022 record high is proving to be a tough hurdle to clear.
Over the past three sessions, the DJI has managed two slight
closing penetrations of this line. On Monday, the blue-chip
average ended at 33.987.18 which put it less than 0.1% above the
line at around 33,962. The line will dip to around 33,947 on
Tuesday.
Meanwhile, in the wake of mixed quarterly reports from two
Dow constituents, Johnson & Johnson and Goldman Sachs , as well as housing data, just ahead of Tuesday's open,
e-mini Dow futures are suggesting the DJI is poised to
push higher by around 30 points at the open, as it attempts to
clearly overwhelm the line.
On strength above Friday's 34,082.94 intraday high, the Dow
faces resistance at its January to February highs. These highs
were all packed in a tight range, all lower, and were all capped
by the resistance line. They were at 34,342.32, 34,334.70 and
34,331.47. The December 13 high was at 34,712.28.
A reversal below 33,947 would suggest risk that the DJI was
failing at the resistance line.
There is congestion support in the 33,634-33,572 area. The
50-day moving average ended Monday just over 33,100.
(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)
