Market Recap - STOCKS SINK AS VARIOUS CONCERNS CONTINUE TO SWIRL

The First Week Of June Was A Short One, But It Ended Up Being Long On Disappointment As The Major Indices Couldn't Build On The Prior Week's Strong Gains.

Instead, they fell victim to renewed selling interest that was a byproduct of concerns about the economic outlook, earnings outlook, and monetary policy outlook.

Oil prices had a starring role once again. They ebbed and flowed, reacting to an early-week decision by the EU to ban 90% of Russian crude imports by the end year and a subsequent decision by OPEC+ to boost its production increase targets for July and August. The latter were projected to be up 0.432 mb/d, but OPEC+ decided on adding to the totals and agreed to a new target of 0.648 mb/d.

The OPEC+ decision sounded good on the surface, but oil traders treated it as being insufficient to meet the demand needs driven by China's reopening activity and the EU sanctions on Russian oil. WTI crude futures started the week at $115.07/bbl, but as of this writing they were trading at $120.31/bbl and hitting their highest level since March.

The pop in oil prices is expected to bleed through to gas prices, which will pose an added tax on consumers. That understanding contributed to the economic growth concerns along with some caustic commentary from leading CEOs and some hawkish-sounding remarks from voting FOMC members.

Specifically, JPMorgan Chase CEO Jamie Dimon said he sees an "economic hurricane" coming and that, while things look sunny now, JPMorgan Chase (JPM) will be conservative with its balance sheet. On Friday, Tesla (TSLA) CEO Elon Musk said he has a "super bad feeling" about the economy and that Tesla needs to cut about 10% of its staff and freeze all hiring.

Fed Governor Waller, meanwhile, kicked off the week with an acknowledgment that he endorses a policy rate above the neutral rate by the end of the year. Fed Governor Brainard followed in his wake with a contention that it is very hard right now to see the Fed pausing its rate hikes in September. Cleveland Fed President Mester echoed that sentiment on Friday. She also said that she doesn't see an "economic hurricane," but believes the risk of recession has increased.

This week's economic data didn't corroborate the recession view. In total, it painted a picture of an economy that is still doing well, but starting to feel the strains of inflation pressures and supply chain issues.

Consumer confidence was better than expected in May but still lower than April; the ISM Manufacturing Index for May was stronger-than-expected, and accelerated from April, but its employment component fell into contraction territory; the Fed's Beige Book said the majority of Fed districts indicated slight or modest growth and that retail contacts noted some softening among consumers; nonfarm payroll increases in May were larger than expected, although retail trade declined by 61,000; and the ISM Non-Manufacturing Index for May decelerated from April with a drop in business activity.

Intermixed with the economic data this week was a mixed batch of earnings news, highlighted by Salesforce, Inc. (CRM) increasing its FY23 profit outlook and Microsoft (MSFT) lowering its fiscal Q4 EPS expectations due to unfavorable foreign exchange rate movement.

The market managed to shake off Microsoft's warning on Thursday, recognizing that it wasn't an operational issue. Nevertheless, the rebound-minded bias fell by the wayside on Friday in the wake of Elon Musk's comments, the May employment report, and Morgan Stanley stating that it believes its quarterly revenue growth estimates for Apple (AAPL) are at risk because of slowing growth for the App Store.

The mega-cap stocks were relative strength leaders during the week but that position got tarnished on Friday, evidenced by a 2.6% decline in the Vanguard Mega-Cap Growth ETF (MGK) that left the MGK down 0.7% for the week.

With the exception of the energy sector, every S&P 500 sector finished Friday with a loss. For the week, the energy sector (+1.2%) was the best-performing sector followed by information technology (+0.04%), and consumer discretionary (unchanged). The weakest links were the health care (-3.1%), real estate (-2.2%), financial (-2.1%), and consumer staples (-1.7%) sectors.

Looking to the Treasury market, the 10-yr note yield ended the week up 20 basis points at 2.94% while the 2-yr note yield jumped 21 basis points to 2.67%. The U.S. Dollar Index was up 0.5% to 102.16.

• Dow Jones Industrial Average: -9.5% YTD

• S&P 400: -11.3% YTD

• S&P 500: -13.8% YTD

• Russell 2000: -16.1% YTD

• Nasdaq Composite: -23.2% YTD

Market Recap - Market Finds Renewed Strength

The S&P 500 Broke A Seven-Week Losing Streak During The Past Week, Rallying 6.6% After Hitting Its Lowest Level Since March 2021 Last Friday. The Nasdaq (+6.8%) Outperformed Slightly While The Dow (+6.2%) Lagged A Bit But Was Able To Snap Its Longest Weekly Losing Streak Since 1932.

The first two sessions of the week saw some volatility, but the market rallied strongly after the S&P 500 managed to stay above last week's low during Tuesday's affair.

All eleven sectors finished the week in positive territory with the consumer discretionary (+9.2%) sector leading the way after underperforming earlier this month. The sector narrowed its May loss to 5.6%, largely thanks to a bounce in retail stocks after concerns about inflation and strength of consumer spending sent many of these names to their lowest levels in over a year. However, the past couple days saw renewed interest in retailers on hopes that the worst is in the past.

Mega cap names also did some heavy lifting with the likes of Apple, NVIDIA, and Tesla contributing to the rally during the second half of the week. The trio gained between 8.3% and 14.5%.

Last week's rebound in stocks that faced significant recent weakness masked another strong showing from the energy sector, which climbed 8.1%, extending its May advance to 16.9%. Crude oil, meanwhile, returned to its May high, climbing $4.72, or 4.3%, to $114.77/bbl for the week.

Treasuries recorded their third consecutive week of gains, drawing some strength from speculation that the Fed could pause its rate hikes in September. The 10-yr yield finished the week just a basis point above its 50-day moving average (2.73%).

S&P 500 Briefly Enters Bear Market Territory

The S&P 500 Fell 3.1% This Week, Which Featured Disappointing Corporate Updates And Economic Data That Stoked Growth Concerns. The Nasdaq Composite Underperformed With A 3.8% Decline, Followed By The Dow Jones Industrial Average (-2.9%) And Russell 2000 (-1.1%).

The consumer staples (-8.6%) and consumer discretionary (-7.4%) sectors were the weakest links as high-profile retail companies Walmart (WMT), Target (TGT), and Ross Stores (ROST) each cited sticky cost pressures for their disappointing results and cautious outlooks. Investors were concerned about the durability of the consumer in the high-cost environment.

Conversely, the utilities (+0.4%), health care (+0.9%), and energy (+1.1%) sectors each ended the week in positive territory.

There were plenty of rebound efforts throughout the week amid a contrarian-minded sentiment rooted in the oversold nature of the market and by a BofA Global Fund Manager Survey that showed cash levels at their highest position (6.1%) since 9/11 and the largest underweight position in equities since May 2020.

Arguably, the most important rebound effort was at the end of the week, which took the S&P 500 out of bear market territory (-20% from a recent high). Unfortunately, though, growth concerns fueled by persisting inflation and supply chain disruptions were the dominant issue for the market.

Like Walmart, Target, and Ross Stores, Home Depot (HD) was pressured by higher costs, evident by an 8.2% yr/yr decline in customer transactions in the first quarter. Cisco (CSCO), Applied Materials (AMAT), and Deere (DE), meanwhile, highlighted supply chain problems in their earnings reports.

On top of that, this week's economic data was relatively disappointing:

• The May Empire State Manufacturing Survey turned negative with a reading of -11.6 (Briefing.com consensus 15.0)

• Weekly initial claims were higher than expected at 218,000 (Briefing.com consensus 200,000)

• The Philadelphia Fed Index dropped to 2.6 in May (Briefing.com consensus 16.5)

• The Conference Board's Leading Economic Index (LEI) decreased 0.3% m/m in April (Briefing.com consensus 0.0%)

• Existing home sales fell 2.4% m/m in April to a seasonally adjusted annual rate of 5.61 million (Briefing.com consensus 5.65 million)

• Building permits for April fell 3.2% m/m to 1.819 million (Briefing.com consensus 1.820 million)

• The Weekly MBA Mortgage Applications Index fell 11.0%

Fed Chair Powell spoke on inflation this week, saying the Fed will be more aggressive with rate hikes if inflation doesn't come down in a clear way, but that the Fed can be less aggressive if inflation does clearly come down.

The 10-yr yield dropped 15 basis points to 2.79% while the 2-yr yield decreased one basis point to 2.58%.

S&P 500 Almost Entered Bear Market Territory

Each Of The Major Indices Fell More Than 2.0% This Week, As The Market Remained Pressured By Growth Concerns, Heightened Volatility, And Downwards Momentum. The Nasdaq Composite Lost 2.8%, The Russell 2000 Lost 2.6%, The S&P 500 Lost 2.4%, And Dow Jones Industrial Average Lost 2.1%.

Ten of the 11 S&P 500 sectors closed lower and five of which fell more than 3.0%, namely information technology (-3.5%), consumer discretionary (-3.4%), financials (-3.6%), and real estate (-3.9%). The consumer staples sector escaped the week with a 0.3% gain.

Growth concerns were heightened by the following developments:

• Expectations for the Fed to remain on its aggressive tightening plans amid inflation data that remained elevated

• Russia threatened retaliation if Finland follows through with plans to join NATO

• Early reports indicated that Shanghai was again tightening COVID-19 restrictions, although there was hope that those restrictions would soon ease later this month

• The IEA lowered its global growth oil demand forecast, and Saudi Arabia, according to Bloomberg, cut oil prices for Asian buyers due to weak demand

• Walt Disney (DIS) warned that Disney+ subscriber growth is apt to slow down in the second half of the year

• A slew of high-growth story stocks continued to disappoint with earnings and/or guidance like Coinbase Global (COIN), Unity Software (U), Fiverr (FVRR), Peloton (PTON), Upstart (UPST), GoodRx (GDRX), Sofi Technologies (SOFI), and Palantir (PLTR)

• Uber (UBER) was planning to cut costs, according to CNBC

While inflation remained hot, the peak inflation narrative was revived by a better-than-feared core PPI reading for April, a moderation in the year-over-year increases in CPI and PPI for April, a flat m/m change in import prices for April, and a downwardly revised 4.1% increase (from 4.5%) in export prices for March.

Growth concerns, peak inflation hopes, and a general flight to safety contributed to increased demand for Treasuries, which drove yields lower in a curve-flattening trade this week. The 2-yr yield dropped eight basis points to 2.59%, and the 10-yr yield dropped 18 basis points to 2.94%. The U.S. Dollar Index rose 0.9% to 104.57. 

Sentiment was further pressured by the S&P 500 temporarily breaking below 4,000; weakness in the mega-caps including Apple (AAPL), which temporarily lost its position as the world's most valuable company by market capitalization; and the heightened volatility as investors sold into early rally efforts.

The one rally effort, however, that didn't get sold was the one at the end of the week after the S&P 500 almost entered bear market territory (it was down 19.9% from its all-time high). That key level was a presumed indicator that it was time for an overdue bounce.

Separately, Fed Chair Powell, St. Louis Fed President Bullard (FOMC voter), Cleveland Fed President Mester (FOMC voter), San Francisco Fed President Daly (non-voter) each said they prefer 50-bps rate increases instead of 75-bps. Treasury Secretary Yellen, meanwhile, said she doesn't think the huge losses in stable coins will cause systemic issues for the financial system.

On a related note, the Senate confirmed Fed Chair Powell for a second term and confirmed Lisa Cook to the Fed Board. Lorie Logan was named Dallas Fed President, effective Aug. 22.

Volatile Start to May

The Stock Market Started May With A Volatile Week That Produced Losses For The Major Averages. The Nasdaq Led The Way, Falling 1.5% While The S&P 500 Surrendered 0.2%. Small Caps Also Struggled, Sending The Russell 2000 Lower By 1.3%.

The week began with modest gains for the major averages but not before early selling sent the S&P 500 to its lowest level in nearly a year. However, the market overcame the weak start and climbed for the next two days, capping the rally with a Wednesday surge that took place even though the FOMC announced a 50-bps rate hike and a balance sheet reduction plan. However, Fed Chairman Powell acknowledged that a 75-bps hike is not being considered, which was cited as the reason for the post-FOMC rally that lifted the S&P 500 to a one-week high.

Whatever positives were gleaned from Wednesday's rally were forgotten by the end of Thursday's session, which saw the major averages cough up their gains from the previous day while crude oil remained resilient, staying above its 50-day moving average (104.96) even though the U.S. Dollar Index pushed to a fresh 20-year high.

Friday's session was also uninspiring as equities followed a weak start with a brief recovery that faltered as the day went on. Besides the weak action, the day's biggest story was the release of the April jobs report, which beat headline estimates but also showed a decrease in the labor force participation rate.

Quarterly earnings continued pouring in during the past week, but even positive results were often met with selling amid concerns about headwinds from soaring inflation.

STOCKS SLUMP TO END BRUISING MONTH OF APRIL

It Was Another Tough Week For The Stock Market, Putting A Close To An Even Worse Month. The S&P 500 Fell 3.3% This Week, Which Was Slightly Better Than The 4% Declines In The Nasdaq Composite (‐3.9%) And Russell 2000 (‐4.0%). The Dow Jones Industrial Average Fell 2.5%.

Aside from brief spurts of short‐covering activity, earnings relief bids, and mechanically-oriented buying, the market remained pressured by concerns about the Fed aggressively tightening policy in a low growth, high inflation environment.

The Advance GDP report had the hallmarks stagflation, although unemployment levels remain historical low: real GDP decreased at an annual rate of 1.4% in the first quarter (Briefing.com consensus +1.1%) while the GDP Chain Deflator increased by a larger‐than‐expected 8.0% (Briefing.com consensus +7.3%).

Pricing pressures were further illustrated by the following events:

• Apple (AAPL) warned of higher costs associated with supply chain issues for fiscal Q3; Amazon.com (AMZN) guided Q2 operating income (and revenue) below expectations

• The PCE Price Index surged 0.9% month‐over‐month, which took the year‐over‐year rate to 6.6% from 6.3% in February

• The Q1 Employment Cost Index increased 1.4% (Briefing.com consensus 1.1%)

• WTI crude futures rebounded above $105.00 per barrel ($105.03, +3.03, +3.0%)

Risk sentiment was further pressured by the mixed state of earnings when considering the results, guidance, and reactions. Meta Platforms (FB) stood out among the mega‐cap earnings, rising 9% this week on better‐than‐feared results, but other stocks like Teladoc (TDOC) continued to get crushed on disappointing news.

Treasury yields ended the week slightly lower amid an uptick in demand. The 2‐yr yield decreased three basis points to 2.69%, and the 10‐yr yield decreased two basis points to 2.89%. The U.S. Dollar Index rallied 1.9% to 103.20.

Separately, Twitter (TWTR) agreed to be acquired by an entity wholly owned by Elon Musk for approximately $44 billion, or $54.20 per share, in cash. Mr. Musk sold over $8 billion of Tesla (TSLA) shares this week to presumably help finance the deal.

Market Recap - Third Straight Losing Week for S&P 500 and a Fourth for the Dow

The Nasdaq Composite (‐3.8%) and Russell 2000 (‐3.2%) underperformed the benchmark index with losses over 3.0% while the Dow Jones Industrial Average fell 1.9%.

It was reported last week that bullish sentiment among individual investors recently hit a 30‐year low, setting the stage for a contrarian‐minded rally this week. The rally took place on Tuesday, and briefly continued on Thursday, before a bearish sentiment took hold of the market.

Nine of the 11 S&P 500 sectors closed lower with the worst performers being the communication services (‐7.7%), energy (‐4.6%), and materials (‐3.7%) sectors. The defensive‐oriented real estate (+1.2%) and consumer staples (+0.4%) sectors ended the week in positive territory.

The market had done a good job fending off the Netflix (NFLX) disappointment in which NFLX tanked 35% the day after reporting a decline in subscribers. Earnings reports, after all, were mostly better than expected, and they were from a diversified batch of companies, including Tesla (TSLA) and seven Dow components.

The problem this week was mainly threefold: 1) the 10‐yr yield rapidly approached 3.00%, hitting 2.97% before ending the week eight basis points higher at 2.91%, 2) Fed Chair Powell wasn't ready to declare peak inflation and said the Fed could move to a tight policy after reaching a neutral rate, and 3) weakening technical factors.

On the latter, the S&P 500 couldn't stay above its 200‐day moving average (4497) and fell back below its descending 50‐day moving average (4407).

A few more notes on the Fed, it didn't help that Chicago Fed President Evans, who is one of the move dovish Fed members and was supposed to be a FOMC voter next year, announced plans to retire in early 2023. In addition, St. Louis Fed President Bullard (FOMC voter) said the fed funds rate should be at 3.50% by the year‐end.

The 2‐yr yield, which is sensitive to expectations for the fed funds rate, climbed 27 basis points to 2.72%.

Market Recap - Bad Week for the Growth Stocks

The Week Was Shortened In Observance Of Good Friday, But It Was A "Bad Week" For The Growth Stocks Amid Upwards Pressure In Interest Rates.

The impact of the growth stocks was reflected in the underperformance of the S&P 500 (‐2.1%) and Nasdaq Composite (‐2.6%) relative to the Dow Jones Industrial Average (‐0.8%) and Russell 2000 (+0.5%).

The small‐cap index closed higher, while the S&P 500 fell further below its 200‐day moving average (4495) and even closed below its 50‐day moving average (4418). The information technology (‐3.8%), communication services (‐3.0%), health care (‐2.9%), and financials (‐2.7%) sectors led the retreat.

The declines in the first two sectors were linked to the moves in the Treasury market, where the 10‐yr yield rose another 12 basis points to 2.83% despite a return of the peak inflation narrative. That narrative was supported by a brief, two‐day decline in rates following hot CPI and PPI data for March.

The Vanguard Mega Cap Growth ETF (MGK) fell 3.3%, whereas the Invesco S&P 500 Equal Weight ETF (RSP) decreased "just" 0.9%.

The financials sector, in particular, was pressured by an EPS miss from JPMorgan Chase (JPM) and a revenue miss from Wells Fargo (WFC). The other banks, for the most part, reported better‐than‐expected earnings results with mixed reactions.

There were some positives, though. The materials (+0.7%), industrials (+0.4%), energy (+0.3%), and consumer staples (+0.2%) sectors ended the week in positive territory.

Airline stocks were strong after American Airlines (AAL) raised its Q1 revenue guidance and Delta Air Lines (DAL) supplemented better‐than‐expected earnings results with upbeat bookings commentary. The U.S. Global Jets ETF (JETS) rallied 8.0% this week.

GROWTH STOCKS FALL AMID STEEP RISE IN LONG-TERM RATES

The Growth Stocks -- Small And Large ‐‐ Took It On The Chin This Week, As The 10‐Yr Yield Jumped 34 Basis Points To 2.71%. The Nasdaq Composite (‐3.9%) And Russell 2000 (‐4.6%) Fell More Than 3.5%, The S&P 500 Fell 1.3%, And The Dow Jones Industrial Average Fell 0.3%.

The primary catalyst for interest rates was Fed Governor Brainard's (FOMC voter) expectations for the Fed's balance sheet to shrink considerably more rapidly than in the previous recovery, starting as early as May.

The March FOMC Minutes elucidated Mr. Brainard's hawkish mindset with the following note: Participants generally agreed it would be appropriate to reduce the balance sheet by $95 billion per month (about $60 billion for Treasury securities and about $35 billion for agency MBS) and that one or more 50 basis point increases in the fed funds rate could be appropriate at future meetings.

Shorter‐dated rates pushed higher, too, with the 2‐yr yield rising ten basis points to 2.52% amid rate‐hike expectations. Longer‐dated rates were further boosted by the March ISM Non‐Manufacturing Index, which showed the Prices Paid Index (83.8%) hit its second‐highest reading ever.

Essentially, the Fed news exacerbated concerns about the central bank potentially making a policy mistake that sends the economy into a recession, which would lower earnings prospects and valuations. The growth‐stock valuations were pressured by the rapid rise in rates this week.

The S&P 500 information technology (‐4.0%), consumer discretionary (‐3.3%), and communication services (‐2.7%) sectors, which are home to the mega‐caps, were influential weights on the benchmark index. The industrials sector (‐2.6%) was also weak amid continued bleeding in the transportation space.

Conversely, the energy sector (+3.2%) joined the defensive‐oriented health care (+3.4%), consumer staples (+2.7%), utilities (+1.9%), and real estate (+0.8%) sectors in positive territory for the week.

Separately, it's worth reminding readers that the growth stocks did catch a speculative bid on Monday after Elon Musk disclosed a 9.2% stake in Twitter (TWTR). Mr. Musk was subsequently named to the company's Board of Directors and reclassified his stake to an active position.

The S&P 500 ended the week below its 200‐day moving average (4493).

Market Recap - Mixed Week as 2s10s Spread Inverts

The S&P 500 Eked Out A 0.1% Gain This Week, Cooling Off From A Strong Start To The Week. The Dow Jones Industrial Average Decreased 0.1% While The Nasdaq Composite Finished Rose 0.7% And The Russell 2000 Rose 0.6%.

From a sector perspective, the cyclical financials (‐3.3%), energy (‐2.4%), and industrials (‐1.5%) sectors were the weakest performers, while the defensive-oriented real estate (+4.4%), utilities (+3.7%), and consumer staples (+2.3%) sectors outperformed with decent gains.

The first two days of the week saw a continuation of positive momentum - Apple (AAPL) was up for 11 straight sessions - amid reported progress in ceasefire talks. Stocks rallied even as the 2s10s spread briefly inverted on Tuesday, which is a viewed as a harbinger for a recession between 6‐24 months after the inversion.

The market retraced those gains over the next couple of days, though, as Russia refuted progress in talks with Ukraine, the core PCE Price Index for February (+5.4%) rose to its highest level since 1983, the March employment report fueled expectations for a more hawkish Fed, and investors took profits and rebalanced for quarter-end.

The employment report showed decent jobs growth (over 400,000 for both nonfarm payrolls and private sector payrolls), a better‐than‐expected unemployment rate of 3.6% (Briefing.com consensus 3.7%), and an expected 0.4% increase in average hourly earnings.

Following the report, the 2s10s spread re‐inverted amid concerns surrounding a Fed policy mistake. By week's end, the 2‐yr yield was up 14 basis points to 2.43%, and the 10‐yr yield was down 11 basis points to 2.38%. The U.S. Dollar Index increased 0.2% to 98.56.

Oil prices fell 12.6%, or $14.29, to $99.54/bbl after the U.S. and other IEA nations said they will release oil from their strategic reserves to help alleviate gas prices. The U.S. plans to release one million barrels per day for the next six months. On a related note, OPEC+ agreed to increase its output targets by 432,000 barrels per day in May.