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Main U.S. indexes close slightly red
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Energy weakest S&P 500 sector, industrials leads gainers
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Dollar up; gold dips; crude off >1%; bitcoin off ~5%
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U.S. 10-Year Treasury yield jumps to ~3.58%
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WALL STREET EDGES DOWN AS RATE HIKE EXPECTATIONS COOL SENTIMENT
The main Wall Street indexes closed slightly lower on Monday as expectations of a highly anticipated interest rate hike this week and data that suggests the Federal Reserve may stick to its fastest and largest tightening cycle ever dampened sentiment. Energy was the biggest decliner of the 11 S&P 500 sectors, falling 1.3%, while heath care led advancing sectors with a 0.6% gain.
Regional banks were hit hard. That said, the Dow Transports , and semiconductors showed strength. Growth eked out a gain to outpace a small decline in value . A rate hike at the conclusion of a two-day policy meeting on Wednesday is highly expected, with that probability rising to 92.2%, according to CME Group's FedWatch Tool. Chances of a June 14 hike rose to 29.5% from 24.2% in the morning. Fed Chairman Jerome Powell is unlikely to signal a policy pivot anytime soon, especially considering the latest inflation and wage data, said Joe LaVorgna, chief U.S. economist at SMBC Nikko Securities in New York.
Data earlier on Monday showed U.S. manufacturing rose off a three-year low in April as new orders improved slightly and employment rebounded, but it was the sixth-straight month that the PMI remained below 50, indicating contraction. Similarly long stretches of underperformance occurred in 1995-96 and 1998, but the U.S. economy avoided a recession both times because the Fed pivoted and cut rates, LaVorgna said. The Fed has raised rates 500 basis points since March 2022 in one of the fastest and largest tightening cycles on record. "We expect Chair Powell will reinforce the need to keep rates restrictive until policymakers are more confident that core inflation is trending back to 2%," LaVorgna said in a note. "By the time investors are sure inflation is going back to 2%, the economy will be in a recession and potentially a deep one," he said. The Dow Jones Industrial Average fell 0.14%, the S&P 500 lost 0.04% and the Nasdaq Composite dropped 0.11%. Here's a snapshot of closing market prices:
(Herbert Lash)
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WITH THE MARKET SPINNING ITS WHEELS, STOCK SELECTION MAY BE THE WAY FORWARD (1330 EDT/1730 GMT) Stocks are the primary driver of wealth creation over time, but the stock market delivers that benefit sporadically. According to Philip Palumbo, founder, CEO and chief investment officer at Palumbo Wealth Management, over the last 100 years there have been several periods where the stock market has been stuck on a hamster wheel for extended periods. Using monthly closing data, Palumbo says that by far the longest period of the S&P 500 just milling about was from 1929 to 1954.
"The S&P index closed at 31.30 in September 1929 and didn't close a month above that level again until September 1954! That's an even 25 years on the hamster wheel!" writes Palumbo in a note. Admittedly, that is an extreme example, but there have been other periods in the modern era that have frustrated investors. For example, Palumbo notes that from October 1973 to January 1980, more than six years, the S&P 500 went nowhere. The same is true for August 2000 through May 2007, and October 2007 through March 2013. Those last two are so close together, that Palumbo says the S&P had just barely made it back to the 1,480 level in January 2013, a level that was first breached in August 2000. That's more than 12 years of nothing. As Palumbo sees it, we may be in one of those periods right now. The S&P 500 is back where it was almost exactly two years ago in April 2021:
Meanwhile, the Nasdaq Composite is back where it was in November 2020, over two years ago, so that's "nowhere fast for two + years already." Palumbo's bottom line is that as long as this malaise continues, it will be hard to make money with index funds: "The implication is that stock selection is once again important, as it is the only way that provides the potential to generate positive returns in a market that remains effectively flat."
(Terence Gabriel)
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SELL IN MAY AND GO AWAY? READ THE BOTTOM LINE -ABLIN (1215 ET/1615 GMT)
The adage to sell in May and go away has a few flaws, according to many Wall Street sages, but Jack Ablin, chief investment strategist at Cresset Capital Management, poked through the data and found some interesting takeaways. Dividing the calendar into two six-month periods - from November through April and May through October - Ablin's research showed a stark difference in returns when evaluating the Dow Jones industrial average starting in 1900. "The results are striking. $1,000 invested only from May through October grew to $3,273 between April 1900 and October 2022," Ablin says in a note that said dividends were excluded in his study as they would be the same for both strategies. "Investing $1,000 between November through April expanded to a whopping $180,626 over the same timeframe," he said. Ablin acknowledged if there's a seasonal rationale to the outperformance, "we haven't discovered it," but breaking the results by decades also confirmed the trend, he said.
The November-April period consistently outperformed the
May-October period every decade since 1960, including April 2020
through November 2022, he said. Stocks rose through all six
decades and beginning of the 2020s in the November through April
period, but fell in the '70s and 2000s during the May through
October period, besides underperforming, his research showed.
To be sure, there's a caveat. Combining both periods showed
that $1,000 invested in 1900 would have grown to more than
$500,000, nearly double that of investing solely in November
through April.
"While the difference in performance is meaningful, it
underscores Cresset's belief in long-term investing for more
generous and predictable results," Ablin said.
(Herbert Lash)
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MAY DAY DATA: PMI, CONSTRUCTION SPENDING (1116 EDT/1516 GMT) The first of May is, of course, May Day. While it used to be an excuse to prance around maypoles and tying ribbons into knots, it since been rebranded a workers' holiday. In that spirit, this May Day brings us data from factories and construction sites. The first of any month - if it falls on a weekday - always means hearing about the state of American manufacturing, courtesy of the Institute for Supply Management's (ISM) purchasing manager's index (PMI) . ISM's PMI delivered a reading of 47.1, showed activity in U.S. factories contracted in April for the sixth consecutive month. However the contraction wasn't as steep as analysts predicted, gaining 0.8 point and landing north of the 46.8 consensus. Still, it fell 2.9 points short of the magical level of 50, the dividing line between monthly contraction and expansion. "New order rates remain sluggish as panelists remain concerned about when manufacturing growth will resume," writes Timothy Fiore, chair of ISM's manufacturing business surveys. "Panelists' comments registered a 1-to-1 ratio regarding optimism for future growth and continuing near-term demand declines." "Price instability remains and future demand is uncertain as companies continue to work down overdue deliveries and backlogs," adds Fiore. Commentary from survey participants accentuate both the positive and negative. Every "business conditions remain strong," and "sales and bookings (are) exceeding plans," is countered with "pricing pressures continue to plague daily operations," and "sales continue to be soft." Here's a look at select components of ISM PMI:
Not to be ignored, S&P Global also offered their take on March PMI , which landed at 50.2 - a tad weaker than the 50.4 advance "flash" reading released a couple weeks ago, but still clinging by its fingernails to the "expansion" side of 50. It showed that while new orders, output and employment improved, input and selling prices also increased - bad news for inflation worry warts. "US manufacturing output has regained some encouraging momentum at the start of the second quarter," says Chris Williamson, chief business economist at S&P Global. "The brightening demand picture was accompanied by a lifting of business confidence about the outlook and increased hiring." "The downside was a reigniting of inflationary pressures, with a stronger order book encouraging more firms to pass through higher costs to customers," Williamson adds. The dueling PMIs differ in the weight they allocate to various components (new orders, prices paid, employment, etc). Here's a look at the extent to which the two indexes agree (or not):
Finally, the Commerce Department would have us know that expenditures on U.S. construction projects increased by 0.3% in March, reversing February's 0.3% decline. It was a stronger print than the paltry 0.1% gain predicted by economists. Digging into the report's foundation, private sector and government construction spending both grew, gaining 0.3% and 0.2%, respectively. But home building continued to be a drag, dipping 0.2%, and outlays on transportation projects was the outlier, dropping 1.1% from February. Still, while spending on residential projects has been a drag on the topline since last June, that drag has grown weaker, reflecting the notion that the housing market has found its basement and is working its way back to ground-level. "Aside from the residential sector, which accounts for roughly half of total construction spending, the picture looks much healthier," says Michael Pearce, lead U.S. economist at Oxford Economics.
Wall Street is struggling for gains, with the S&P 500 and Dow Industrials just slightly green, while Nasdaq is modestly lower. FANGs and regional banks are among underperformers.
(Stephen Culp)
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U.S. STOCKS MIXED AHEAD OF KEY FED DECISION ON RATES (0955 EDT/1355 GMT) Stocks on Wall Street are mixed and little changed early on Monday as investors await a much-anticipated decision in two days on not only if the Federal Reserve raises interest rates by 25 basis points, but whether clues are provided for a similar hike in June. Industrials are leading the 11 S&P 500 sectors higher, while energy is the biggest decliner. Semiconductors , Dow Transports and small caps are also gaining, while value is outpacing growth . While a rate hike on Wednesday has essentially been a foregone conclusion - the probability of rates rising to the 5.00-5.25% range is 89.5%, according to CME Group's FedWatch Tool - chances of a June 14 hike are now 24.2%.
While many in the market still expect the Fed to begin cutting rates later this year, some believe Fed Chair Jerome Powell will cool that notion at Wednesday's press conference. Action Economics forecasts the start of the next rate-easing cycle to be postponed until the first quarter of 2024 and as a result, the month of May may disappoint, said Sam Stovall, chief investment strategist at CFRA Research in a note. Markets in Europe were closed for May Day.
The following is a snapshot of market prices in early trading:
(Herbert Lash)
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S&P 500 INDEX: PUFFED UP FOR WHAT COULD BE A PIVOTAL WEEK
(0900 EDT/1300 GMT)
The S&P 500 index ended Friday back above the weekly
Ichimoku cloud formation for the first time in more than a year.
Although seen as a bullish development, the benchmark index
still faces a cluster of major resistance hurdles not far above
Friday's 4,169.48 close, in a week permeated by a number of big
event risks:
Resistance resides at the Feb. 2 high at 4,195.44, the 23.6% Fibonacci retracement of the March 2020-January 2022 high, at 4,198.70, the 100-week moving average, which ended Friday at 4,202.92, and the August 26 Fed-Chair Powell Jackson Hole speech high, at 4,203.04. S&P 500 failures around 4,200 in late August of last year, and early February of this year, both led to sharp declines. From the late-August high, the SPX lost as much as 17% over the next 33 trading days (tds) as it declined to new lows into October. From the early-February peak, the SPX fell as much as 9.2% over the next 26 tds into its March low. Thus, traders will be keenly focused on this week's action, especially with the results of an FOMC meeting on Wednesday, Apple's quarterly report on Thursday and April jobs data on Friday.
(Terence Gabriel)
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SPX05012023 Early Market Pices ISM manufacturing PMI SP Global v ISM PMI Construction spending SPX05012023FlatApr21 Closing market prices ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
