Last week the big news about Anheuser-Busch, the parent company of Bud Light, which experienced a drop in market capitalization from $132.38 billion to $127.13 billion, resulting in a nearly 4% fall in shares amid the Dylan Mulvaney Bud Light controversy.
Some investors may be happy that Gold broke $2K and Bitcoin reached $30K due to new inflation fears and hawkish Fed.
Overall, Wall Street action was lackluster. However, all three major indices ended the week higher than last week’s close, despite concerns about inflation and the Fed’s next moves.
The 10-year/three-month Treasury yield spread is an important economic indicator, as its inversion often signals an impending recession. The spread is calculated as the difference between the yields of 10-Year and 3-Month Treasury Constant Maturities, and it reflects investor sentiment and economic health.
Historical data show a consistent pattern of yield curve inversions preceding recessions. On average, since 1969, the yield curve inversion occurred ten months before a recession, as the National Bureau of Economic Research (NBER) determined. While this pattern does not guarantee that an inverted yield curve will always lead to a recession, it does highlight a strong correlation between the two events.
Historical data show a strong correlation between yield curve inversions and recessions, with the inversion typically occurring ten months before a recession.
The current spread is at -1.61%, indicating a deeply inverted yield curve, which raises concerns about a possible recession. However, this indicator is not infallible; other factors can influence the outcome.
INFLATION, FED AND ECONOMIC REPORTS
Inflation worries popped up again after peeps got their hands on the March CPI report. Even though the total CPI decreased over the year, the core CPI speeding up could have been better news. Both total Producer Price Index PPI and core PPI dropped in March, but the core CPI increase put a damper on the whole disinflation hype.
Last week, Fed officials said recent inflation info isn’t yet making them hit the brakes on tightening. Waller, a Fed governor and FOMC voter gave a speech Friday morning saying the Fed’s still got a ways to go on its inflation goal, and they should keep tightening monetary policy for a while. But Chicago Fed President Goolsbee (also an FOMC voter) thinks the Fed should be careful, considering how unsure things are with financial headwinds.
This week’s data and chatter didn’t change the market’s vibe too much about the Fed’s May FOMC meeting. The odds of a rate hike in May went up a bit – from 71.2% last week to 77.5% this week – according to the CME FedWatch Tool. Disinflation in this week’s data wasn’t enough to cancel the core CPI speed-up or the negative vibes from Fed official comments.
Trading overall was very light last week because investors are waiting for most of the Q1 earnings season to wrap up before making any big moves. They’ll pay close attention to guidance and whether earnings estimates need to be lowered even more.
Investors were super eager for Friday’s Q1 earnings season to kick off. JPMorgan Chase (JPM), Citigroup (C), BlackRock (BLK), and PNC Financials (PNC) all ended Friday with gains after sharing some solid Q1 results.
But even with the financial sector doing well, Friday’s market was still dragged down by policy expectations and rate hike worries.
Popular stocks, like Boeing (BA) and UNH, also took a hit, making things worse. Boeing faced production and delivery delays for its 737 MAX, and UNH investors were worried about hitting EPS targets due to changes in Medicare Advantage.
Regional banks also had a rough time on Friday, even though the big ones did okay. Overall, the S&P 500 hit its highest level since mid-February this week (4,150), reaching the top of an 11-month trading range.
S&P 500 SECTOR PERFORMANCE
The data highlights the performance and volatility across various sectors of the S&P 500:
- Consumer Discretionary: Strong 1-month performance (6.08%) and YTD performance (13.23%), but negative 1-year performance (-19.64%).
- Consumer Staples: Modest gains in the short term, but underperforming over 1-year (-4.93%).
- Health Care: Mixed short-term results, with strong long-term performance (5-year: 65.97%, all-time: 1442.91%).
- Industrials: Negative 3-month performance (-1.72%) but 6-month solid performance (14.58%).
- Information Technology: Exceptional 3-month (14.54%) and 6-month (23.41%) performance, with high long-term growth (all-time: 416.48%).
- Materials: Negative 3-month performance (-2.39%) but positive 6-month performance (14.11%).
- Real Estate: Declining performance across most timeframes, with the most significant drop over 1 year (-25.40%).
- Communication Services: Strong short-term and YTD performance (23.72%) but weaker long-term growth (all-time: 23.66%).
- Utilities: Negative performance in the short term, with modest, long-term gains (all-time: 89.11%).
- Financials: Negative performance in the 3-month (-8.28%) and 1-year (-11.75%) periods.
- Energy: Mixed performance, with positive 1-year results (10.77%) and strong all-time growth (221.91%).
Volatility is highest in the Real Estate sector (3.01%), while the Consumer Staples sector has the lowest volatility (1.04%).
CALENDAR & MOVERS
- Tuesday: Building Permits (MoM) (March)
- Thursday: Existing Home Sales (MoM) (March)
In the realm of economics, the spotlight will shift to housing statistics following last week’s emphasis on inflation and retail sales. Updates on the NAHB Housing Index, housing starts, and existing home sales are anticipated throughout the week, presenting an overview of the housing market in the context of increasing interest rates.
The Mortgage Bankers Association is expected to release mortgage rate and application information around mid-week. Apart from housing, unemployment, and PMI data are also expected on Thursday and Friday, respectively. Both sets of data could potentially influence Federal Reserve decisions prior to the commencement of its blackout period on Saturday.
- April 17: SCHW, STT, MTB, PNFP
- April 18: NFLX, BAC, GS, WAL, SI, BK, LMT, JNJ
- April 19: TSLA, MS, USB, DFS, SYF, ZION, ALLY, CFG, AAL
- April 20,: T, UNP, CSX, PM, TSM, AXP, STLA, NUE, AN
- April 21: PG, SAP, SLB, ALV, RF, BIIB
Investors should watch: Keep an eye on Johnson & Johnson (JNJ), IBM (IBM), Colgate-Palmolive Company (CL), Williams-Sonoma (WSM), and Kinder Morgan (KMI) for dividend movement. Procter & Gamble (PG) increase their dividend payments.
The latest data indicates a slowdown in both inflation and the labor market in the United States. Investors are predicting a 25 basis point increase in the Federal Reserve’s key rate during their May meeting. The US 10-year bond yield has risen slightly to 3.4356%, while the gap with German bonds of the same maturity has reached its narrowest point in over two years. Moreover, Asian bonds have experienced the most significant foreign capital inflow in over a year recently due to investor anticipation of expansionary monetary policies to boost the economy.
OIL & ENERGY
The positive trend continues, as both major global oil benchmarks are on track to finish the week higher, marking their fourth straight week of gains. Brent crude is trading near $86, and US WTI has briefly exceeded its yearly high by surpassing $83. The increase can be attributed to the China/OPEC partnership, with China showcasing accelerated reopening through robust import and export figures and OPEC further constraining global supply via production cuts. European natural gas, as represented by the Rotterdam FTT, remains steady at around EUR 41/MWh.
PRECIOUS METALS & GOLD
Gold’s ascent continues, reaching $2030 per ounce, bolstered by declining US inflation that has helped suppress bond yields. The World Gold Council’s recent monthly report revealed strong net inflows into physically-backed gold ETFs, driven by the banking crisis, a weakening dollar, and falling bond yields. Conversely, industrial metal prices have generally decreased. Copper currently trades at approximately $8800 per tonne, while aluminum is at $2260.
Bitcoin has risen over 8.5% since Monday, crossing the significant $30,000 threshold. Ether has outperformed the leading cryptocurrency, soaring more than 12% during the same period and settling around the $2100 mark. The cryptocurrency market is buoyed by optimism, with investors anticipating better economic conditions in the coming months. Despite an 86% increase year-to-date, Bitcoin remains 54% below its all-time high of $69,000 from November 2021.