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Major U.S. indexes end up; transports, banks outperform
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Energy leads S&P sector gainers; utilities weakest group
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Dollar, gold edge up; WTI rises >2.5%; bitcoin dips
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U.S. 10-Year Treasury yield slides to ~3.44%
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U.S. STOCKS HIGHER FOR THE WEEK AS FOCUS TURNS TO FED (1605 EDT/2005 GMT) Each of the three major U.S. averages closed out the week with gains, as investors ran through a gauntlet of earnings while economic data by and large did little to alter expectations for the path of the Federal Reserve's policy.
Expectations for a 25 basis point hike from the Fed at its May 3 policy announcement stand at roughly 84%, according to CME's FedWatch Tool. Investors will also closely monitor comments from Fed Chair Jerome Powell after the statement for clues on how long the hiking cycle may last.
Stocks ended higher on Friday as earnings from names such as Intel and Exxon Mobil helped overcome a fall in Amazon despite better-than-expected earnings as the online retail giant signaled a slowing in its cloud business growth.
For the week, the Dow gained 0.86%, the S&P 500 advanced 0.87% while the Nasdaq climbed 1.28%. For the month, The Dow rose 2.48%, the S&P added 1.46% while the Nasdaq edged up 0.04%. Below is your closing market snapshot:
(Chuck Mikolajczak)
*****
NASDAQ COMPOSITE: PRESSURE IN THE PIPE (1350 EDT/1750 GMT) Although the S&P 500 index ended Thursday virtually flat for the week, shorter-term volatility has certainly picked up.
The benchmark index gave up as much as 2% through Wednesday, only to surge back as much as 2.2% on Thursday. That said, the SPX remains trapped in a range, and just shy of some major resistance. Meanwhile, the Nasdaq Composite , which also experienced some sharp swings this week, has seen one historical volatility measure on a daily basis collapse to a 20-month low, suggesting it is especially ripe for even greater swings, or indeed its next trend. On Thursday, the Composite's daily Bollinger Band (BB) width ended at its tightest reading since August 25, 2021:
Compressed band width does not in itself predict direction, but traders are on alert for what could end up being a surprisingly strong IXIC range breakout. An IXIC thrust above this year's high at 12,270, as well as the upper daily BB, now around 12,285, will have potential to spark upside momentum. Conversely, taking out the lower daily BB, which ended Thursday at 11,855, as well as Tuesday's low at 11,798, and the 50-day moving average, which closed Thursday at 11,788, will have the potential to trigger a sharp downside spill. Perhaps not surprisingly, the S&P 500 tech sector is exhibiting similarly tight daily BB width as the Nasdaq Composite. Given that tech accounts for nearly 30% of S&P 500 market cap, it would appear that market fireworks are not far off.
(Terence Gabriel)
*****
SCARED OF BANKS, PENDING DOOM? TAKE A DEEP BREATH -BERNSTEIN (1345 ET/1745 GMT)
When the sky's falling and doom looms on the horizon, it may be time to invest, says Richard Bernstein, the former chief investment strategist at Merrill Lynch who now runs his own shop with the eponymous name. Don't get caught in the constant hyperbole and listen to the Chicken Littles who decry the end of banking, end of capitalism and end of almost anything, says Bernstein in a note, "Bank failures: unsettling but not unusual." "That's not reality. This isn't the first banking crisis in U.S. history and it won't be the last," he said. Bernstein remembers Continental Illinois when it went under in 1984, at the time the largest bank failure in U.S. history that gave rise to the term "too big to fail."
The Chicago bank got over-extended in speculative energy-related loans and emerging markets, leading investors to re-examine its risk-pricing and lending practices during a high-growth period in the late '70s, a Federal Reserve history says. The greatest investment opportunities tend to be when profits and liquidity fundamentals are improving yet investors are too scared to take advantage of the assets that benefit from that fundamental improvement, says Bernstein.
"Vice versa, we try to avoid situations in which fundamentals are deteriorating yet investors don't care," says. Bank stocks appear to combine these factors. Profits and liquidity fundamentals are still deteriorating, but investors seem aware, which suggests the risks are well known, he said. "If fundamentals do improve, then it could imply a stronger weight in the sector might be appropriate. For the time being, however, we feel comfortable with our sizable underweight."
(Herbert Lash)
*****
ABOVE AVERAGE INDIVIDUAL INVESTOR PESSIMISM PERSISTS -AAII (1245 EDT/1645 GMT) Pessimism among individual investors stayed above average for the tenth-straight week in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, both optimism and neutral sentiment declined. AAII reported that bearish sentiment, or expectations that stock prices will fall over the next six months, rose 3.4 percentage points to 38.5%. Although bearish sentiment was recently reverting closer to its historical average, it is now approaching an "unusually high" level again. Bearish sentiment is above its historical average of 31.0% for the 70th time out of the past 75 weeks.
Bullish sentiment, or expectations that stock prices will rise over the next six months, dipped by 3.1 percentage points to 24.1%. Optimism is "unusually low for the 49th time out of the past 69 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 37.4%. Neutral sentiment continues to be above its historical average for the 16th time out of the past 17 weeks.
With these changes, the bull-bear spread widened to -14.4 percentage points from -7.9 percentage points last week. The spread is at an "unusually low level for the seventh week out of the last 10 weeks":
AAII noted that market volatility continues to worry
individual investors.
Additionally, AAII asked its members if they think investors
are too bullish or too bearish right now. Here are their
responses:
They are too bullish: 30.4%
They are too bearish: 30.4%
Their sentiment toward the market is about right: 18.6%
No opinion/Not sure: 20.6%
(Terence Gabriel)
*****
FED UP: PCE, EMPLOYMENT COSTS, UMICH, CHICAGO PMI (1205 EDT/1605 GMT) A spate of mixed data on Friday provided market participants with lots to chew on, but did little to move the needle with respect to Fed rate hike expectations. The Commerce Department released its broad-ranging Personal Consumption Expenditures (PCE) report for March , and the star of that show was the Fed's pet inflation indicator, the PCE price index. The headline number cooled substantially, both on a monthly and annual bases, to 0.1% and 4.2%, respectively. Stripping away volatile food and energy prices, the core measure repeated February's 0.3% print and came in slightly cooler year-on-year, shedding 0.1 percentage point to 4.6%, a tad warmer than analyst expectations. "The report shows inflation continues to move in the right direction," says Peter Cardillo, chief market economist at Spartan Capital Securities. "It’s still high but it’s something that the Fed needs to take into consideration." "I don’t think we escape another 25 basis point rate hike at their next meeting," Cardillo adds.
Here's a look at core PCE along with other major indicators, and the distance they have yet to fall before approaching Powell & Co's average annual 2% target: Elsewhere in the report, personal income grew by 0.3%, overshooting the 0.2% consensus, while consumer spending was unchanged from February. The saving rate - or the unspent portion of disposable income - gained 0.3 percentage points to 5.1%. "Consumers' inclination to spend wasn't strong in March," writes Oren Klachkin, lead U.S. economist at Oxford Economics. "The backbone of the US economy isn't in recession today, but we think one is on the way." "Income growth is poised to slow, lingering excess savings will run out, willingness to use credit cards will decline, and inflation won't moderate quickly," Klachkin adds. The saving rate is a favorite indicator of Treasury Secretary and erstwhile Fed Chair Janet Yellen, as it's widely seen as a gauge of consumer expectations, as folks are more likely to feed the piggy bank in times of economic uncertainty. Speaking which, the mood of the American consumer has brightened a tad this month, but long-term inflation expectations were hotter than originally reported, according to the University of Michigan's (UMich) final take on March consumer sentiment . The current conditions index was revised downward slightly, offsetting a slight gain in the expectations component. But while one-year inflation expectations held firm at 4.6% (matching the annual Core PCE print, incidentally), five-year inflation expectations gained 10 basis points to 3%. Next, employment costs - one of the main drivers of inflation and a top concern of the Fed - heated up more than analysts expected in the first three months of the year.
The employment cost index , which aggregates wage
and benefit growth, rose by 1.2% in the first quarter versus the
1.1% consensus.
But Ian Shepherdson, chief economist at Pantheon
Macroeconomics, sees that picture changing as the year
progresses.
"We fully expect wage growth to slow markedly over the
remainder of this year as payroll growth rolls over and
unemployment rises," Shepherdson says. "More immediately,
though, the Fed watches the ECI closely and these data seal the
deal on 25bp hike next week."
And finally, factory activity in the Midwest has contracted
at a much shallower pace this month than economists projected.
The Chicago Purchasing Managers' Index (PMI) delivered a reading of 48.6, 5.1 points north of expectations,
although still below the magic level of 50, the dividing line
between contraction and expansion.
On Monday, analysts also expect the Institute for Supply
Management's nationwide PMI number to show a shallower monthly
contraction in March, with consensus calling for a half-point
improvement to 46.8.
(Stephen Culp)
*****
U.S. STOCKS HIGHER, SHAKE OFF AMAZON DECLINE (1040 EDT/1440 GMT)
Major U.S. averages are higher in the early stages of
trading, with the Nasdaq recently erasing initial declines, as
equities overcome a drop of nearly 4% in heavyweight Amazon.com .
Amazon is the biggest drag on both the S&P 500 and Nasdaq after the online retail giant reported quarterly results but warned of a
cloud growth slowdown .
Stocks are managing to gain even after
economic data showed
that underlying inflation pressures remain strong, while
consumer spending has leveled off.
Gains were led by Microsoft , Apple and Exxon Mobil . The oil company giant posted
better-than-expected earnings
.
As such, energy is leading S&P 500 sector gains,
with an additional boost from an advance in oil prices, while
consumer discretionary is the weakest.
(Chuck Mikolajczak)
*****
CAN AI HELP SOLVE THE ONSHORING INFLATION PROBLEM? (1000 EDT/1400 GMT) The Federal Reserve's inflation fight could run into an additional hurdle - a push for onshoring, or moving production of goods back or close to the U.S.
This trend, which will require more investment at a time when interest rate hikes are raising the cost of capital and could result in increased inflationary pressures but the adoption of AI technology could potentially offset this, said Stefan Rust, founder and CEO at data aggregator Truflation.
"Technology has the potential to be the saving grace with artificial intelligence providing significant productivity gains that could counter the rising cost of capital," Rust told the Reuters Global Markets Forum.
He pointed to how growth in computing power, the internet, and mobile data access has increased productivity at a reduced cost in the past as a potential blueprint for AI's impact on costs.
AI remains a buzzy topic for both investors and corporations.
A Brown Brother Harriman survey of investors found 56% intended to add AI and robotics-themed strategies to their portfolios this year.
Meanwhile, a Reuters analysis showed the term "AI" has been used nearly twice as frequently in this quarter's conference calls of S&P 500 companies as it was in the previous quarter.
Additionally, Rust said the push for onshoring is helping to shift inflationary pressures from the supply to the demand side. "We've seen a significant shift over the last six months from a supply side issue to actual demand-side inflation... the supply issue is largely due to the onshoring of manufacturing and the desire for independence in parallel to deglobalization," he added.
(Lisa Mattackal)
*****
NASDAQ COMPOSITE: PRESSURE IN THE PIPE (0900 EDT/1300 GMT) Although the S&P 500 index ended Thursday virtually flat for the week, shorter-term volatility has certainly picked up.
The benchmark index gave up as much as 2% through Wednesday, only to surge back as much as 2.2% on Thursday. That said, the SPX remains trapped in a range, and just shy of some major resistance. Meanwhile, the Nasdaq Composite , which also experienced some sharp swings this week, has seen one historical volatility measure on a daily basis collapse to a 20-month low, suggesting it is especially ripe for even greater swings, or indeed its next trend. On Thursday, the Composite's daily Bollinger Band (BB) width ended at its tightest reading since August 25, 2021. Compressed band width does not in itself predict direction, but traders are on alert for what could end up being a surprisingly strong IXIC range breakout. An IXIC thrust above this year's high at 12,270, as well as the upper daily BB, now around 12,285, will have potential to spark upside momentum. Conversely, taking out the lower daily BB, which ended Thursday at 11,855, as well as Tuesday's low at 11,798, and the 50-day moving average, which closed Thursday at 11,788, will have the potential to trigger a sharp downside spill. Perhaps not surprisingly, the S&P 500 tech sector is exhibiting similarly tight daily BB width as the Nasdaq Composite. Given that tech accounts for nearly 30% of S&P 500 market cap, it would appear that market fireworks are not far off.
(Terence Gabriel)
*****
FOR FRIDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
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Inflation Personal consumption UMich inflation expectations Employment cost index Chicago PMI AAII04282023 IXICBW04282023C Closing levels April 27 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
