April 28, 2023, Weekly Stock Market Return Recap. Boosted by the strength of mega caps, the S&P 500® posted a positive 2% return in April, outpacing smaller cap stocks. However, almost one-half of that return was driven by only two sectors, Communications and Information Technology, which indicates that sector breadth is still narrow with many sectors lagging. As we enter the second quarter (Q2), inflation and the Fed remain at center stage, but with added worry of brewing problems with bank reserves, future bank lending and existing commercial loan portfolios. Morgan Stanley Chief Investment Officer Mike Wilson wrote a recent note on major near-term risk for stock prices. Wilson said the regional banking crisis triggered an unusual surge in liquidity that elevated stock prices prior to earnings seasons. He also asserted that the business cycle is slowing and that earnings remain far too high. Wilson further noted that when forward earnings-per-share ("EPS") growth goes negative, which is the current trend, the Fed usually cuts rates, not hikes them. But with four-decade-high inflation, the Fed has hinted that cutting rates won't be in the conversation until 2024. Below, is a graph of the current relationship between earnings growth and the S&P 500 return on a five-year historical basis:
April 21, 2023, Weekly Stock Market Return Recap. All US equity indexes posted muted losses on the week, led by Nasdaq -0.4%, followed by Dow Jones -0.2% and with the broad market equity index finishing essentially flat at -0.1%. Markets continue to feel the drag of the financial sector, with disappointing earnings and deposit surplus concerns. The top sector performer on the week was the defensive sector of consumer staples, led by Proctor & Gamble (PG) earnings beating estimates and finishing up +3% on Friday; shares of Home Depot (HD), Lowe's (LOW), and Kimberly-Clark (KMB) also finished strong. While inflation trends are declining, the services sector remains sticking. For example, core services inflation is outpacing core goods inflation by a significant degree. Interestingly, though, the annual change in core goods inflation ticked up for the first time since summer 2022, while the annual change in core services ticked down for the first time since summer 2021.
April 14, 2023, Weekly Stock Market Return Recap. All US equity indexes edged upward on the week: S&P 500 closed up 0.8%, Dow Jones finished +1.2% and Nasdaq inched +0.3%. The US equity markets have been rebounding these past 6 weeks, but it is important to keep in mind that a bear market has never bottomed out before a recession begins. As investors brace for an economic slowdown, this week began with the most significant net short position in the S&P 500 futures since 2011. Furthermore, the breadth of the market remains lackluster, with 57% of stocks in the S&P 500 trading below their 200-day moving average. The Consumer Price Index (CPI) revealed headline inflation rose 0.1% over last month and 5.0% over the prior year in March, a slowdown from February's 0.4% month-over-month increase and 6% annual gain. March's inflation of 5.0% was down from June's 9.1%, marking the slowest annual increase in consumer prices since May 2021, and growing ever closer to the Federal Reserve's 2% target. Both measures were slightly better than economist forecasts of a 0.2% month-over-month increase and 5.1% annual increase, according to data from Bloomberg.
April 14, 2023, Weekly Stock Market Return Recap. All US equity indexes edged upward on the week: S&P 500 closed up 0.8%, Dow Jones finished +1.2% and Nasdaq inched +0.3%. The US equity markets have been rebounding these past 6 weeks, but it is important to keep in mind that a bear market has never bottomed out before a recession begins. As investors brace for an economic slowdown, this week began with the most significant net short position in the S&P 500 futures since 2011. Furthermore, the breadth of the market remains lackluster, with 57% of stocks in the S&P 500 trading below their 200-day moving average. The Consumer Price Index (CPI) revealed headline inflation rose 0.1% over last month and 5.0% over the prior year in March, a slowdown from February's 0.4% month-over-month increase and 6% annual gain. March's inflation of 5.0% was down from June's 9.1%, marking the slowest annual increase in consumer prices since May 2021, and growing ever closer to the Federal Reserve's 2% target. Both measures were slightly better than economist forecasts of a 0.2% month-over-month increase and 5.1% annual increase, according to data from Bloomberg.
April 6, 2023, Weekly Stock Market Return Recap. On a short holiday trading week, the US equity market indexes finished mixed: The S&P 500 lost -0.1% on the week, posting its first losing week in four, while the Nasdaq fell -1.1%. However, the Dow Jones stayed afloat, rising +0.6% on the week. Both the Institute for Supply Management (ISM) Manufacturing and Purchasing Managers' Index (PMI) showed that the economy did worse than expected in March, falling to quarterly lows. The bellwether of business conditions ISM’s overall reading was 51.2, which was far below expectations of 54.4 and last month's reading of 55.1. Similarly, the PMI reading came in at 46.3, which is notable since a reading below 50 indicates a contraction. Finally, inflation trends continue to ease as marked by the Personal Consumption Expenditures (PCE) inflation data for February was slightly softer at 0.3% vs 0.4% expected.
March 31, 2023, Weekly Stock Market Return Recap. All three US equity indexes spiked more than 3% on a weekly basis. For the month, the S&P 500 closed 3.51% higher, while the Nasdaq jumped 6.69%. Insofar as the headline gains are impressive, the positive territory gains are largely recovery trends that are yet to be supported by wide sector market breadth support. For example, Apple and Microsoft accounted for about one-half of the S&P 500’s monthly gains. Another way to break this down is that while the S&P 500 is now up 7.5% year-to-date, the Information Technology sector contributed +5.44% of that total gain for the first quarter (Q1FY23). Indeed, only four of the 12 sectors in the S&P 500 are meaningfully up, with four sectors in the red and another four sectors about breakeven on the year. The catalyst for the market recovery this month is that the real federal-funds rate is quickly approaching positive territory. In the past, this has signaled the end of rate hikes, with the central bank likely only having one further rate hike ahead.
March 31, 2023, Weekly Stock Market Return Recap. All three US equity indexes spiked more than 3% on a weekly basis. For the month, the S&P 500 closed 3.51% higher, while the Nasdaq jumped 6.69%. Insofar as the headline gains are impressive, the positive territory gains are largely recovery trends that are yet to be supported by wide sector market breadth support. For example, Apple and Microsoft accounted for about one-half of the S&P 500’s monthly gains. Another way to break this down is that while the S&P 500 is now up 7.5% year-to-date, the Information Technology sector contributed +5.44% of that total gain for the first quarter (Q1FY23). Indeed, only four of the 12 sectors in the S&P 500 are meaningfully up, with four sectors in the red and another four sectors about breakeven on the year. The catalyst for the market recovery this month is that the real federal-funds rate is quickly approaching positive territory. In the past, this has signaled the end of rate hikes, with the central bank likely only having one further rate hike ahead.