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U.S. indexes end red: Nasdaq off most, down ~0.4%
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Cons disc weakest S&P 500 sector; utilities lead gainers
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Dollar up 0.6%; gold slips 0.3%, crude off ~1%; bitcoin
off >2%
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U.S. 10-Year Treasury yield rises to ~3.46%
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WALL STREET CLOSES LOWER IN RISK-OFF MODE (1605 EDT/2005 GMT) Wall Street's major indexes close slightly lower on Friday with consumer discretionary stocks , down 0.9%, leading sector declines followed by financials , down 0.4%, while on the other side of the coin defensive utilities and consumer staples sectors both rose ~0.4% to lead the gainers as investors took a wary message from consumers.
Early on Friday a survey showed that U.S. consumer sentiment slumped to a six-month low in May while a standoff to raise the federal government's borrowing cap fanned worries about the economy's outlook. About that standoff in Washington, over raising the U.S. government's $31.4 trillion debt ceiling, a new non-partisan congressional report cited "significant risk" of a historic default within the first two weeks of June. So investors sold off some of the most discretionary stocks with the biggest decliners including cruise operators Carnival , down 4.0% and Norwegian , down 3.1%.
Back to the indexes, it was the Dow industrials' fifth straight day of declines, marking it longest losing streak in two months.
For the week, the S&P 500 fell 0.3% and the Dow dropped 1.1%, with both clocking their second straight week of declines. Meanwhile, the Nasdaq posted a 0.4% weekly gain, for its third in a row. It helped that megaweight Alphabet added ~11% for its biggest weekly gain in roughly two months.
Shares of some major U.S. regional lenders closed lower, underscoring continued investor uncertainty about the financial stability of mid-sized banks.
The KBW regional banking index managed an 11th hour 0.4% gain. But the S&P 500 banks index , which includes some of Wall Street's biggest regionals, closed down 1.2% on the day and posted its third-straight weekly loss. Here is your closing snapshot:
(Sinéad Carew)
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DON'T UNDER-DO OR OVER-DO TECH (1320 EDT/1520 GMT) In his latest research report, Mark Haefele, chief investment officer at UBS Global Wealth Management, showed some very mixed feelings about the technology sector. But hear him out. Elevated valuations are Haefele's main concern about the sector which he rates as "least preferred."
Globally, he points to technology's trading valuation of more than 22 times its 12-month forward earnings estimates, which is a 22% premium to the last decade.
And on a price-to-book basis the MSCI world tech sector is trading in the 90th percentile for the last 20 years, he notes. But with tech the single largest component of the MSCI all country world index the money manager recommends keeping an exposure that's "only marginally below benchmark, rather than aggressively selling down the sector."
Its 22.5% weighting puts it well ahead of the next biggest sector which is financials with a 13.9% weighting.
For investors with exposure well below their benchmark "it could still be prudent to add selectively to exposure" he says. But investors with tech exposure well above benchmark can consider strategies including "rebalancing toward more defensive sectors, such as consumer staples and utilities." So how does one add tech exposure? Haefele suggests stocks in his "self-help" themes which includes companies that have been good at trimming costs, upgrading product or delivering strong distributions to shareholders.
He also advises building of long-term exposure to high-growth themes like artificial intelligence, which was the buzz word du-jour in the first-quarter earnings season. Haefele suggests that such focus on the topic supports the UBS view that AI hardware could grow 20% a year to reach $90 bln by 2025.
The MSCI world information index is up 21.5% YTD. It had fallen 31% in 2022 for its first annual decline since 2018.
Meanwhile, the S&P 500 tech sector is down 0.79% on Friday and 0.9% for the week so far. The S&P 500 communication services index , which includes AI-darlings such as Google , is down ~0.2% for the day and for the week.
(Sinéad Carew)
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INDIVIDUAL INVESTORS SUPPORT A FED PAUSE -AAII (1220 EDT/1620 GMT) Pessimism among individual investors stayed above average for the 12th-straight week in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, optimism increased, while neutral sentiment declined. Meanwhile, a majority of individual investors think the Fed should pause its rate hikes in June. AAII reported that bearish sentiment, or expectations that stock prices will fall over the next six months, dipped 3.7 percentage points to 41.2%. Pessimism remains above its historical average of 31.0% for the 72nd time out of the past 77 weeks. Bearish sentiment is also "unusually high for the second consecutive week."
Bullish sentiment, or expectations that stock prices will rise over the next six months, rose 5.3 percentage points to 29.4%. Optimism continues to be at "a low level but is no longer unusually low." Bullish sentiment is still below its historical average of 37.5% for the 75th time in the past 77 weeks.
Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, slipped 1.6 percentage points to 29.4%. This keeps neutral sentiment below its historical average of 31.5% for just the third time in 19 weeks.
With these changes, the bull-bear spread narrowed to –11.8 percentage points from -20.8 percentage points last week. The spread "remains unusually low for the third consecutive week."
In this week's special question, AAII asked its members what the Federal Reserve should do about interest rates at its next meeting in June. Here are the responses: Continue to raise interest rates: 17.9% Keep interest rates unchanged: 64.1% Lower interest rates: 5.6% Not sure/no opinion: 12.4%
(Terence Gabriel)
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STUMBLING INTO THE WEEKEND: UMICH, IMPORT PRICES (1143 EDT/1543 GMT) Two pieces of disparate data greeted investors as they prepared to sashay away into the weekend, both of which have a lot to do with the dreaded "i" word.
First, the mood of American consumers, who shoulder about
70% of the country's GDP, has soured more than expected this
month.
The University of Michigan's (UMich) preliminary stab at May
Consumer Sentiment tumbled 9% from April to a
reading of 57.7, falling a mile short of the 63 consensus.
The 'current conditions' element dropped 5.4%, while the
'expectations' component slid by a worrisome 11.7%, reflecting
ongoing economic worries, and increasingly, the ongoing slap
fight in Washington over the debt ceiling.
Add slow-to-cool inflation to the mix, and there you have
the recipe for buzz kill pie.
"While current incoming macroeconomic data show no sign of
recession, consumers’ worries about the economy escalated in May
alongside the proliferation of negative news about the economy,
including the debt crisis standoff," writes Joanne Hsu, director
of UMich's consumer surveys. "If policymakers fail to resolve
the debt ceiling crisis, these dismal views over the economy
will exacerbate the dire economic consequences of default."
Additionally, near-term inflation expectations cooled a tad
- to 4.5% from 4.6% over the next year - a full percentage point
cooler than this week's core CPI reading.
But the longer-term, 5-year figure gained heat, rising from
3.0% to 3.2%, well above the Fed's average annual 2% target.
Speaking of which, the cost of goods and services imported
to the United States rebounded in April, rising 0.4%
compared with March's 0.8% decline.
The turnabout was largely attributable to a 4.5% monthly
jump in fuel prices. Excluding fuel, import prices remained the
same on a monthly basis.
"Easing supply conditions, elevated rates, and faltering
consumer and business demand will all weigh on import prices in
the months ahead," says Matthew Martin, U.S. economist at Oxford
Economics. "Lower import prices will support weaker goods
inflation, as producers benefit from the lower cost of input
prices."
Indeed, import prices have plunged 4.8% year-on-year.
But this metric differs from other major inflation
indicators, in that it's susceptible to geopolitical
developments, the global supply chain and currency exchange
rates to a greater extent than other measures with a bit more
immunity.
Here's a look at import prices versus the greenback:
The gloomy UMich print weighed on Wall Street in morning
trading. But while the S&P and the Dow appeared on track to
notch their second straight weekly declines, the tech-heavy
Nasdaq looked as if it wanted to eke out a gain for the week.
(Stephen Culp)
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AI: THREATENING HUMANITY WHILE SAVING THE MARKET (1015 EDT/1415 GMT) Artificial intelligence pioneer Geoffrey Hinton is worried about the dangers of a technology which was designed to perform tasks that used to require human intelligence. Earlier this month Hinton told Reuters that AI could pose a "more urgent" threat to humanity than climate change. That may very well be the case, but in the meantime, traders can't seem to get enough of it as the hype around AI has been boosting the stock market, never mind concerns about real-life worries like a potential recession or banking crisis contagion.
According to research from Societe Generale's Manish Kabra, AI-popular stocks have boosted the market to such an extent that the S&P 500 would be down 2% so far this year, not up 8% if it wasn't for the gains in a selection of "AI-popular stocks" which have rallied because of bets that they'll make it big in AI. Just this week Google's market heavyweight parent Alphabet has provided a big boost after it announced plans to roll out more artificial intelligence for its core search product as it looked to create some of the same consumer excitement generated by Microsoft Corp's update to rival search engine Bing in recent months.
For the year-to-date Alphabet shares are up about 32%, while Microsoft has risen roughly 29%.
Other AI popular stocks Societe Generale has pointed to include Nvidia , up roughly 97% year-to-date, and Facebook parent Meta , up roughly 95% so far in 2023. But Kabra points to the risks of narrow market leadership, which is when a small number of big stocks push indexes higher. He sees narrow performance across S&P 500 sectors with 8 out of the 11 industry groups seeing market-cap weighted indices outperforming equal-weighted indices. He notes that without the AI boom stocks, the S&P 500 would be trading below 3800. It was last at 4131.39.
And the strategist sees the narrow performance persisting against an unfavorable backdrop for leveraged, small-cap, value stocks and companies that made unsustainable buybacks. Kabra sees the S&P 500 stuck in a 3500-4200 range and notes how it is now close to the top of that range. But he sees a mild recession restarting a secular bull run in U.S. stocks. His recommendation, in the meantime, is for defensive growth stocks, staples and industrial stocks. On Friday morning, Nasdaq is slightly red, while the S&P 500 is around flat, and DJI is edging up.
(Sinéad Carew)
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NASDAQ COMPOSITE: CLIMBING ITS WAY OUT OF THE JACKSON HOLE (0900 EDT/1300 GMT) The Nasdaq Composite has now closed at its highest level since August 25, 2022, or the day before Fed-Chair Powell's hawkish Jackson Hole speech which kicked off a sharp decline to new lows. Additionally, the tech-laden index is on track for a third-straight weekly gain. E-mini Nasdaq 100 futures are edging up in premarket trade suggesting the Composite can attempt to build on its gains when Friday's session kicks off:
The IXIC ended Thursday at 12,328.507 which was its
second-straight close above its September 12 intraday high at
12,270.189. That high had capped strength for 165 consecutive
trading days through Tuesday of this week.
The Composite now faces the 38.2% Fibonacci retracement of
its March 2020-November 2021 advance, which should now act as
resistance, at 12,552.36. The February-March 2022 lows should
also now be hurdles in the 12,555-12,588 area.
The Intraday high on the day of Fed-Chair Powell's August 26
Jackson Hole speech was 12,655.836, or about 2.7% above
Thursday's close.
Since mid-March of this year, the rising 50-day moving
average (DMA), which ended Thursday at 11,905, has contained
IXIC weakness.
Of note, the Nasdaq's daily advance decline line, since
hitting a new low a week ago Thursday, has been attempting to
stabilize. That said, it remains below its descending 50-DMA as
the great mass of Nasdaq stocks have been lagging, while the
biggest growth names continue to underpin strength.
The IXIC is up about 18% in 2023, vs about a 45% surge in
the NYSE FANG+TM index . With this, S&P 500 growth has strengthened further relative to S&P 500 value .
In fact, this week, the IGX/IVX ratio ended Wednesday and
Thursday back above its 200-DMA. Wednesday's finish above this
long-term moving average was the ratio's first since January 12,
2022.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
