Investors Wait For Earnings, Fed & Unemployment Numbers (Weekly Cheat Sheet)

Last week the stock market saw a lot of activity, with several significant developments. As for the broader market, the S&P 500 closed at 4,169.48, up 34.13 points or 0.83%.

The Dow Jones Industrial Average rose, gaining 272 points or 0.80%. These figures indicate that the overall market had a positive week despite individual stock turbulence. The markets are still very skittish, and there are growing fears of recession.

Many things were happening, so I thought I would try to break it into sections.

Earnings Update

First, many S&P 500 companies, including major tech firms such as Amazon, Alphabet, Meta, and Microsoft, reported their earnings. Interestingly, the tech sector has rebound from a strong bear trend from the previous year.

While MSFT and META saw significant increases in their stock prices, GOOG and AMZN saw declines following their earnings reports. This was largely due to the latter’s warning about the slowing growth of their cloud services. Despite this, mega-cap stocks as a whole still had a major impact on index-level gains. For instance, the Vanguard Mega Cap Growth ETF (MGK) experienced a 1.9% increase in value for the week.

Fox Fires Carlson, Loses Market Value

In other news, Fox Corporation lost $930 million in market value following the announcement that Tucker Carlson would leave Fox News. Fox Corp. CEO Lachlan Murdoch and Fox News Media CEO Suzanne Scott decided to fire Carlson, and his departure from the network was abrupt and immediate. There are several theories behind Tucker being fired, but right now, the loser is Fox News and Carlson fans (like me) that enjoy his reporting.

Goldman Sachs Warns About Debt Default in July

According to a note to clients from Goldman Sachs analysts, they predict that if a debt ceiling agreement is not reached, the United States could face a technical default in late July or early August [1]. The analysts also note that the US Treasury may have as little as $25-30 billion in June [1]. However, they expect Congress and the Biden administration to reach a last-minute agreement on the Treasury’s deadline day, “plus or minus one day.”

PCE May Signal Dovish Fed

The Personal Consumption Expenditures (PCE) price index, a key indicator monitored by the Federal Reserve for signals of future inflation, rose by 4.2% from March 2022. This increase represents a decline from the previous months’ figures, which registered at +5.1%, +5.4%, +5.3%, and +5.7%. This current rise is the smallest since May 2021. The Fed may use this as a reason to stop increasing rates.

JPMorgan Takes Control of First Republic Bank

Regulatory authorities have taken control of First Republic Bank (FRC), whose shares have decreased by 43.30%, and have arranged for most of its operations to be acquired by JPMorgan Chase & Co (JPM), currently experiencing a 0.87% increase in shares. This move averts a potential chaotic failure that could have exacerbated the ongoing banking crisis.

JPMorgan has agreed to take on all of First Republic’s insured and uninsured deposits totaling $92 billion. In addition, it will acquire most of the bank’s assets, which comprise around $173 billion in loans and $30 billion in securities.

The Federal Deposit Insurance Corp. (FDIC) will share in the losses on First Republic’s loans as part of the deal. The FDIC expects its insurance fund to incur a loss of $13 billion from this transaction. JPMorgan also stated that it would receive $50 billion in financing from the FDIC.

The First Republic, headquartered in San Francisco and the second-largest bank to fail in US history, suffered a loss of $100 billion in deposits following a March bank run, which occurred after the failure of another Bay Area lender, Silicon Valley Bank. Despite receiving a $30 billion deposit from a consortium of America’s largest banks, First Republic struggled to stay afloat. JPMorgan has confirmed that these deposits will be returned after the completion of the deal.

GDP Report

According to the advance estimate released by the Bureau of Economic Analysis under the Commerce Department, the US economy grew at an annual rate of 1.1% in the first quarter of 2023. This marks a notable deceleration compared to the 2.6% growth observed in the previous quarter, the fourth quarter of 2022.

Weak Dollar Strong Gold

As someone who closely monitors the financial market, I have observed an exciting relationship between Gold and the US Dollar. When the US dollar’s value declines, I see the price of Gold often increase, and vice versa.

The example above in the chart above is Gold vs. US Dollar futures. The US Dollar is expected to decline in the coming years, which means the current bullish trend of Gold could continue.

CALENDAR & MOVERS

  • Wednesday: Fed Interest Rate Decision
  • Friday: Unemployment Rate (April)

The upcoming week is expected to be a busy one, with significant economic events taking place. The week will begin with a public holiday that will close most European stock markets, including those in England, France, and Germany.

Investors will closely watch several economic indicators before Wednesday’s announcement, starting with the release of the ISM manufacturing index in the United States on Monday. On Wednesday, the services index will also be published, which will impact the overall economic outlook.

Fed Rate Decision

The most crucial event of the week is scheduled for Wednesday, the Federal Reserve’s decision on interest rates. According to reports, during the upcoming May 2-3 meeting, the Federal Open Market Committee is anticipated to increase interest rates by 25 basis points. While this development is significant, economists are placing greater attention on the language used in the FOMC statement, particularly any changes regarding “some additional policy firming” and “the extent of future increases in the target range”.

Additionally, on Thursday, the European Central Bank will join the Federal Reserve, with the publication of the inflation data in the eurozone set to take place the day before.

Finally, investors will also be monitoring the monthly US employment figures due on Friday and the employment surveys scheduled to be released on Thursday. Overall, it will be a week filled with important economic events that could significantly impact the financial markets.

Dividends

Several companies are expected to increase their quarterly dividend payouts, including Marriott International (MAR), which plans to raise its payout from $0.40 to $0.45 per share. Chesapeake Utilities (CPK) is also expected to raise its quarterly payout from $0.535 to $0.59 per share, while Watts Water (WTS) plans to increase its payout from $0.30 to $0.33 per share. PepsiCo (PEP) is also expected to raise its quarterly dividend from $1.15 to $1.24 per share.

BONDS

The most recent macroeconomic data has been less than encouraging, with some global macro analysts expressing concerns about the worst of three worlds: rising inflation, a resilient labor market, and sluggish growth. This has led to fears of stagflation, as the situation is only a small step away from it. Despite unemployment claims coming in at 230k instead of the expected 248k, US GDP only rose by 1.1% annualized instead of the expected 1.9%.

The Core PCE, which is the Fed’s preferred inflation indicator, rose by 0.3% on a monthly basis and 4.6% on an annual basis, meeting expectations. However, it still seems too early to conclude that the battle against inflation is already won. This means that the Fed still has a long way to go to control the situation, with the odds of a 25bps rate hike currently at 86%, according to CME’s Fedwatch tool. Household spending has also been impacted, falling from +0.1% in February to 0.0% in March, with rising prices being cited as the primary cause. This may mark the end of the “fat cow” period, which was fueled by excess savings resulting from the Covid period.

COMMODITIES

Oil & Energy

This week, oil prices have declined due to concerns about a potential recession and its impact on oil demand. Mixed economic data from the United States has contributed to the decline in crude prices, despite a significant decrease in weekly inventories in the US of 5.1 million barrels, surpassing the expected decline of 1.3 million barrels. As a result, the prices of Northern European Brent and US WTI have experienced a second consecutive weekly drop, settling at $78 and $74 per barrel, respectively.

Precious Metals & Gold

Following a week of losing momentum, base metal prices continue to be affected by a strong dollar and mixed economic data. Copper is trading at around $8500 per metric ton, while aluminum is trading at $2300. Mining companies have been reporting their results to shareholders, with Anglo American reporting a 9% increase in copper production during the first quarter compared to the previous year. Iron ore shipments from Fortescue Metals in Australia remained flat in the third fiscal quarter. Gold is stabilizing around $2,000 per ounce in the precious metals market, with silver trading at $24.80.

CRYPTOCURRENCY

This week, Bitcoin has risen by 6% and is approaching the psychological threshold of $30,000 at the time of writing. Ethereum, on the other hand, has only experienced a slight increase of 1.70%. Crypto investors have been closely monitoring developments in the United States, where debates about building a regulatory framework for the industry remain at a standstill. Coinbase has even filed a lawsuit against the SEC to urge regulators to establish clear rules for industry players.

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