Last week, the stock market experienced a slight downturn overall, with only the Dow Jones Industrial Average managing a minor increase thanks to a shift of funds into blue-chip stocks. However, the other major indices faced losses due to the resurgence of growth concerns.
At the beginning of the week, the unexpected announcement by OPEC+ of a 1.16 million barrels per day production cut commencing in May and lasting until year-end caused a loss of market confidence. This led to a surge in oil prices, which increased by 6.4% to $80.70/bbl.
Once the market had a chance to digest OPEC+’s unforeseen decision, growth worries began to spread and dictated price movements for the remainder of the week. The market was impacted by a series of underwhelming economic indicators, and JPMorgan Chase CEO Jamie Dimon’s statement in his annual shareholder letter about the regional banking crisis persisting and having lasting impacts.
Investors are grappling with the belief that reduced growth will result in further cuts to earnings estimates. Cyclical sectors experienced the most significant losses this week, while defensive-oriented sectors enjoyed notable gains.
WHY AND WHEN THE FED WILL INCREASE RATES
According to Morningstar and other market analysts, it appears that the Federal Reserve is expected to pause its rate hikes by the summer of 2023 and then begin cutting interest rates around the end of 2023.
Why? Analysts predict that the Fed will lower rates in response to lower inflation and recessionary conditions, including a marked rise in unemployment from Q4 2023 onwards.
As I have previously said, the Fed wants to see inflation in check and higher unemployment. Both have yet be “officially seen,” but will likely hit very hard in the coming months.
There is a third factor that no one is talking about… politics. Biden would most likely lose (Just like Trump and Carter) if he ran while the economy was in a recession. Many would tell you the Fed is not political, but I think most things are political today. If Biden runs, expect the Fed to feed the market as early as Q1 2024.
S&P 500 SECTOR PERFORMANCE
The Information Technology and Communication Services sectors have performed the best over the last three months, while the Financials sector has experienced the most significant decline.
These trends can be helpful for investors to make informed decisions about their investments and portfolio allocations.
Here’s a summary of the sector’s performance:
- S&P 500 Index: The overall index experienced a slight decrease over the last five days (-0.10%) but showed growth in the previous month (+2.98%) and the last three months (+5.39%).
- Communication Services: This sector had strong growth over all periods, with the highest growth over the last three months (+18.60%).
- Utilities: The sector showed growth over the last five days (+3.90%) and the last month (+5.48%) but a slight decline over the previous three months (-1.74%).
- Real Estate: The sector experienced modest growth over the last five days (+1.40%) but showed declines over the previous month (-3.83%) and the last three months (-2.17%).
- Information Technology: The sector had minimal growth over the last five days (+0.30%) but showed strong growth over the last month (+6.27%) and the previous three months (+19.84%).
- Financials: The sector experienced slight growth over the last five days (+0.50%) but declined over the previous month (-10.97%) and the last three months (-9.67%).
- Health Care: This sector showed growth over the last five days (+4.24%) and the last month (+3.66%) but experienced a slight decline in the previous three months (-1.59%).
- Consumer Staples: The sector had growth over the last five days (+1.75%) and the last month (+3.86%) but a slight decline in the previous three months (-0.67%).
- Consumer Discretionary: The sector experienced a slight decline over the last five days (-0.42%) but had minimal growth over the last month (+0.19%) and moderate growth in the previous three months (+9.87%).
- Industrials: The sector showed declines over all periods, with the most significant decline over the last month (-5.16%).
- Materials: The sector had minimal growth over the last five days (+0.29%) but declined over the last month (-4.13%) and the last three months (-0.98%).
- Energy: This sector experienced growth over the last five days (+3.68%) but showed declines over the last month (-1.63%) and the previous three months (-2.71%).
LAST WEEK’S ECONOMIC REPORTS
The economic reports for the week were generally weaker than expected.
The Institute for Supply Management® (ISM®) Manufacturing PMI® reported a figure of 46.3% for March, indicating a 1.4 percentage point drop in business activity from the previous month. A value below 50% signifies a contracting economy. This marks the fifth consecutive month of contraction and an ongoing downward trend that started in June 2022. None of the five subindexes directly contributing to the Manufacturing PMI® showed growth.
The U.S. Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) reported 9.9 million job openings at the end of February, a decrease of 632,000 from January’s downwardly revised figure of 10.6 million. This is the first time job openings have fallen below the 10 million mark in nine months.
In March, the U.S. Bureau of Labor Statistics reported that the U.S. economy added 236,000 jobs, and the unemployment rate dropped to 3.5% from 3.6% in the previous month. Employment data for January and February were revised, resulting in a combined reduction of 17,000 jobs. The labor force participation rate, representing the percentage of working-age individuals who are employed or seeking work, saw a slight increase from 62.5% to 62.6%. However, this figure remains below the pre-pandemic level of 63.4%.
CALENDAR & MOVERS
- Wednesday, April 12: CPI (MoM) (March)
- Friday, April 14: Retail Sales (MoM) (March)
Numerous markets were shut down on Friday, with some remaining closed on Monday, such as Paris, Frankfurt, Zurich, and London. However, New York will reopen on Monday.
The first significant macroeconomic event of the week, the announcement of US inflation for March, is scheduled for Wednesday, the 12th. I expect the number to come in low (based on Truflation), which will increase the chances of a Dovish Fed and pour rocket fuel on the stock market.
Later that day, the minutes from the most recent Federal Reserve meeting will be released.
On Thursday, the 13th, the US producer prices for March will be disclosed, followed by the main event on Friday: a combination of retail sales and the University of Michigan consumer confidence index on the 14th.
This week will provide essential data as the market seeks to comprehend the future of growth and monetary policy. Outside of the US, investors will monitor Chinese inflation (Tuesday) and European industrial production (Thursday).
EARNINGS
Monday, April 10: Tilray Brands (TLRY), PriceSmart (PSMT) and Greenbrier Companies (GBX)
Tuesday, April 11: CarMax (KMX), ING Groep (ING), and Albertsons Companies (ACI)
Wednesday, April 12: Rent the Runway (RENT) and Sportsman’s Warehouse Holdings (SPWH)
Thursday, April 13: Delta Air Lines (DAL), Progressive Corp. (PGR), and Fastenal (FAST)
Friday, April 14: UnitedHealth Group (UNH), BlackRock (BLK), Wells Fargo (WFC), JPMorgan (JPM), and Citi (C)
DIVIDEND SPOTLIGHT
Investors should watch: Oracle Corporation (ORCL), Dollar General Corporation (DG), General Dynamics Corporation (GD), UBS Group (UBS), WD-40 (WDFC), Bank OZK (OZK), and First United Corporation (FUNC).
BONDS
Last week, the JOLTS (Job Openings) report marked a pivotal moment, revealing a decrease of 632,000 job offers, falling below the symbolic 10 million threshold for the first time in two years.
Previously, any job market weakness would have resulted in rising equities, indicating the potential for the Fed to begin easing monetary policy. However, this time, there was a more traditional “flight to quality,” with bond prices rising (lower yields) and stocks falling. It appears that traders are starting to seriously contemplate a recessionary scenario. Consequently, the US 10-year yield is breaking free from the distribution phase it has experienced since last October by breaching its 3.35% support level.
COMMODITIES
OIL & ENERGY
Earlier lastweek, OPEC+ surprised markets by announcing an unanticipated reduction in crude oil production of up to 1.66 million barrels per day in the coming weeks. Consequently, Brent crude oil surged to $84.6 on Thursday afternoon, up from under $80 the previous Saturday. This voluntary production cut is reportedly aimed at maintaining the stability of the oil market.
Oil prices initially rallied this week but later declined slightly due to investor caution regarding risky assets amidst a potential economic slowdown.
The influence of OPEC+ nations on oil has increased, as the US Strategic Petroleum Reserve (SPR) can no longer easily impact market share. This market tightening by the cartel may cause an imbalance between supply and demand, potentially leading to increased volatility in the long term.
PRECIOUS METALS & GOLD
After a strong rally this week, gold reclaimed the symbolic $2000 level. As a traditional safe-haven asset, precious metal benefits from growing concerns about economic trends. Gold slightly consolidated its positions towards the end of the week.
CRYPTOCURRENCY
Bitcoin has experienced a slight decline of -1.2% last week, falling below $28,000 at the time of writing. Meanwhile, ether, the second-largest cryptocurrency by market capitalization, has outperformed the leader by rising 4% since Monday. However, without significant positive catalysts, digital currencies continue to depend on overall economic conditions and will remain susceptible to forthcoming economic data.
