Category: Market Outlook

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Stock Market Recap & Outlook (5/26­­­­/23) – A Whipsaw Week Fueled on Both Sides By AI and Debt Ceiling Issues

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Dividend Dollars’ Outlook & Opinion

Last week we called for a neutral to moderately bullish week in the market, and we got exactly that. The market moved slightly higher Monday, dropped hard Tuesday and Wednesday, before climbing back up the valley with strength on Thursday and Friday to end the week slightly in the green.

With the end of this week, earnings season is essentially over with 97% of companies having reported. 78% of companies reported positive EPS surprises with 76% reporting positive revenues surprises. The biggest surprise of all came from the $NVDA AI fueled earnings report. AI seems to have become a hot topic of conversation for this earnings season as a record number of companies mentioned the term in their earnings calls.

Aside from earnings, it was a fairly mild week for economic data. Core PCE came in very close to the estimates showing that inflation is still well above targets and jobless claims were lower showing that labor is still hot.

Technicals-wise, we finally got a little bit of a pull back this week on concerns of the debt ceiling. But then the unprecedented earnings report from $NVDA on Thursday singlehandedly turned things around. SPX, for another week, remains solidly above the 200, 100, and 50-day moving averages and is testing the 4,200 level for the 4th time in just two weeks. At the end of this week, a drop to the bear market low would take a 15% move, while the level needed to declare a new bull market is only 2% higher.

Even though next week is shorter with the holiday weekend, it still brings a good number of data releases. Next week is heavy with labor data releases, plus a consumer confidence reading, and ISM/PMI data. The current employment situation and inflation levels have raised the odds of another interest rate hike and I would be surprised to see if the coming data shifts that much.

As for sentiment indicators, there were a few more upgrades than downgrades. With VIX and ETF open interest changes, VIX and SPX open interest put/call ratio changes, and VIX implied volatility gap moving into more bullish territories while VIX and equity open interest and put call/ratio changes moved downward into neutral territories.

However, much like last week, since the debt ceiling issue is not resolved, this week’s outlook has a dual perspective again. With a no deal debt ceiling and the June FOMC meeting approaching, volatility is expected. On the other hand, if a ceiling deal is reached over the weekend even without being signed into law, a relief rally could result in a moderately bullish week ahead.

Weekly Market Review

Summary:

Much like how I finished this week on an upbeat note leading into the holiday weekend, the market did the same! Major indices saw some volatility as we dealt with a lot conflicting sentiments. Regardless, the SPX closed above 4,200 at its highest level since last August. Uncertainty about the debt ceiling and Fitch’s concerns about the US’s credit rating kept price action in check in the early week. However, by Friday, angst was eased as information on ceiling negotiations were released and $NVDA earnings charged the tech space.

Economic data this week corroborated some Fed members’ concerns that more rate hikes may be needed. Kashkari, Bullard, Waller, and Mester all were cited speaking this week that a pause isn’t guaranteed at this point. The higher-than-expected Q1 GDP report, lower than expected jobless claims, strong consumer spending, and uptick in PCE year-over-year all added to the case that more cooling may be needed.

Mega caps continued their outperformance with $MGK rising 2.2% this week versus a 0.3% gain in the market-cap weighted S&P 500. Meanwhile, the equal weight S&P 500 ETF $RSP fell 1.2%. The technology sector was the standout winner for the week while 8 of the 11 sectors all marked losses over 1% for the week.

Monday:

Monday had mixed action, but ultimately ended the day a little higher than the open, but not with much conviction as debt ceiling concerns were growing over the weekend. Janet Yellen reiterated that early June is the hard deadline for the ceiling and that the odds of the government paying its bills on the 15th are quite low.

Add to that commentary, the commentary from Fed President Kashkari that a decision to pause rate hikes in June is a close call and that a pause would not signify that tightening is over. Fed President Bullard also said that he thinks two more hikes are needed this year.

Stocks didn’t have huge reactions to these catalysts. The market clung to narrow ranges for most of the day while briefly peaking over the 4,200 level a few times. Price action could not hold above it, even with mega caps and bank stocks having a strong showing. The latter was spurred on by news that $PACW had entered into an agreement with $KW to sell a portfolio of real estate construction loans with a balance of $2.6B outstanding.

Tuesday:

Tuesday was another mixed day with no strength on either side of the tape. Mega caps dragged on the market, even though broader equities were holding up okay. Things began deteriorating as more press reports came out that a debt ceiling deal was far from agreed upon. House Speaker McCarthy said that a deal was nowhere near while House Minority Leader Jeffries said there is not a lot of progress being made.

The energy sector was the lone positive closer for the day, as $CVX offered a boost on its stock upgrade from HSBC. Consumer discretionary was down -0.9% as the outperformer, partially supported by $LOW’s earnings report.

Tuesday’s economic data included the IHS Market Manufacturing PMI and the New Home Sales Report. The latter event was up 4.1% MoM in April to an annual rate of 683k units, above the expected 660k and the 656k prior reading. Year-over-year sales were up almost 12%. Higher mortgage rates are holding down new homes sales activity as seen by the sales decline in the higher-priced Northeast and West regions that reflected affordability pressures.

The Manufacturing PMI fell to 48.5 in the preliminary May reading from 50.2 and back into contractionary territory. The Services PMI rose to 55.1 up from the 53.6 May reading, the highest level in 13 months. The Composite PMI was 54.5, also its highest level in 13 months. Overall, growth output seen in May was the fastest in over a year.

Wednesday:

Another weak showing happened this day, lead on by an approaching X-date for the ceiling battles. Reports of an impasse were somewhat corroborated by House Speaker McCarthy who told reporters that negotiations are still far apart on issues, but talks would continue.

The market also had to digest lingering rate hike concerns after Fed Governor Waller said that we need to maintain flexibility on the best decision to take in June… fighting inflation continues to be my priority. These concerns took a back seat to the debt ceiling angst though. The major indices all closed with losses, regardless of the attempted rebound in the late afternoon.

The weekly MBA Mortgage application Index came in Wednesday at 4.6% with a 4% drop in purchase applications and a 5% drop in refinance applications. With the average rate of a 30-year mortgage reaching its highest level since March, borrowers continue to be deterred.

Thursday:

Thursday was a mixed showing on the back of many news catalysts. The biggest one was $NVDA’s huge gain after reporting strong Q1 results with very optimistic Q2 guidance. $NVDA’s results fueled buyers in other semi’s and mega-cap stocks that propped up the broader market. Still though, market breadth reflected underlying weakness as Fitch watchlisted the US’s credit rating and Congress members reported their day off on Monday in spite of much needed continued negotiations. However, progress did seem to be made on negotiations and news said differences are narrowing.

Pleasant economic data with the Q1 GDP, jobless claims, and pending home sales came in.

US GDP growth during the Q1 period was revised higher to 1.3%, up from 1.1% in the initial estimate. The change was mainly a result of an upward revision to private inventory investment. Consumer spending was revised slightly higher to 3.8%, a good sign in spite of the ongoing inflation pressures.

Initial jobless claims rose less than expected to 229,000, vs estimates of 245,000. Claims were at 225,000 last week. Continuing claims were slightly lower at 1.79 million. Claims continue to be nowhere near recession levels and continue to reflect a hot labor market.

Pending home sales were flat in April, missing expectations of 1.0% growth. Pending home sales are down 20.3% YoY. Sales were up 3.6% in the Midwest and 4.7% in the West.

Friday:

Friday saw the market end the week on an upbeat note. Ceiling concerns seemed to ease somewhat as an solution was anticipated to be near. Mega-caps continued to boost the indices with economic data pointing to a resilient economy. Semiconductor stocks also continued to rally, with $SOX hitting a 6% gain after $MRVL reported good earnings and guidance.

The rally for the day was not weakened by rising concerns of another rate hike at the June meeting. According to the CME FedWatch Tool, there is a 64.2% chance of a 25 point hike, up from 51.7% yesterday and 13.7% a month ago. This followed the economic data releases for the day which showed strength and quelled worries of a hard landing. This data included the personal income and spending report, durable goods orders, trade in goods report, and consumer sentiment.

Personal income was up 0.4% MoM in line with expectations and above the 0.3% seen prior. Personal spending was up 0.8% MoM above the expected 0.4% and the 0.1% seen prior. The PCE Price index was up 0.4% MoM above the expected 0.3%. This was up 4.4% YoY versus the 4.2% seen last month. The Core PCE Price index was up 0.4% MoM above the expected 0.3% and was up 4.7% YoY versus the 4.6% seen last month. The 0.5% increase in real spending and the uptick in the YoY rates are the key takeaways here. This combination gives the Fed a reason to second guess if a pause is the right move now.

Durable goods orders rose 1.1% MoM in April versus an expected -1%. Excluding transportation, orders fell 0.2% MoM, lower than the expected -0.1%. The key in this report was that non-defense capital goods orders (a proxy for business spending) were up 1.4% MoM, a good sign.

The advanced international trade in goods report for April showed a growing deficit to $98.6B from an upwardly revised $82.7B deficit in March. This gap grew substantially as exports were $9.5B less than in March and imports were $4.5M more. Retail inventories jumped 0.2% while wholesale inventories fell by the same amount.

Finally, the University of Michigan Consumer Sentiment index hit 59.2 in May versus an expected 57.8. This is also higher than the preliminary reading of 57.7 but down from the April reading of 63.5. This time last year, the reading was slightly lower at 58.4. Consumer sentiment improved from mid-month, yet worsened from April as worries about economic outlook increased.

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Market Update Stock Market

Stock Market Recap & Outlook (5/19­­­­/23) – A Strong Week Among a Continued Unsolved Debt Problem

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Dividend Dollars’ Outlook & Opinion

Last week we ended the outlook with neutral outlook call, which appeared to be correct up until mid-week. Q1 earnings season is nearing a close after this week, with 94% of companies having reported. 78% of companies reported a positive EPS surprise and 76% reporting positive revenue surprises. Despite the positive surprises, blended earnings results look to be -2% lower than the prior quarter, marking a second straight decline in earnings for the S&P 500.

What’s even more interesting is that more S&P 500 companies than normal have commented on a “recession” during their earnings calls. 107 companies used the term, which beats the 5 year average of 77 and 10 year average of 59 by a considerable margin. Unsurprisingly, the financials sector discussed it the most. However, it should be noted that this statistic appears to have peaked in Q2 of 2022.

Regardless of the earnings fun fact, this was a slow week for market data (yay these weeks make my job easier)! Initial jobless claims came in lower than expected and lower than last week, showing that jobs are still hot. The reading came in at 242k, the 15th consecutive week it has been above 200k. Housing data continues to come in hot. Retail, on the other hand, fell flat of expectations but was still positive. Next week we have new home sales on Tuesday, jobs, GDP, and pending home sales on Thursday, and PCE and sentiment on Friday.

For technicals, stocks continue to shock and confuse bears and naysayers. They continue to perform better than expected, especially with the unresolved debt ceiling battle. With a 1.8% gain on SPX this week, the chart has reached its strongest position year-to-date. It closed well above all major averages and is poised to break above the 4,200-resistance level (a level that has held for 7 straight weeks). At this point, falling back to the bear market region would require a 15% drop, while a rally to the bull region is now only 2% away.

Most indicators had positive moves this week, including the SPX open interest change, the VIX implied volatility gap, and the VIX futures levels. The composite levels of the indicators are primarily neutral or moderately bullish.

As for next week, the most important item is the PCE reading, as it is the Fed’s inflation gauge and a number of Fed speak this week reaffirmed the fact that their decision would be led by data. If we want a rate pause, this reading had better be good. However, since the next Fed meeting is still three weeks away, the PCE may not matter much in the near-term. If we assume this weeks positive moves were based on debt-ceiling optimism, it may not be shocking to see a quick decline if/when it happens. That may seem contrarian, but it is a buy-the-rumor and sell-the-news approach.

If there is no debt ceiling resolution, the whole picture points to more bullishness. If/when the debt ceiling is breached or lifted, volatility is the expectation, but direction will be determined by the catalyst.

Weekly Market Review

Summary:

The major indices gained this week, breaking a 6-week period of less than 1% moves for the S&P 500. The index reached new closing and intraday highs for the year but failed to maintain a position above 4,200, a level of strong resistance. While mega-cap stocks supported the index’s performance, the breadth of gains was wider this week. The S&P 500 rose 1.7%, while the Vanguard Mega Cap Growth ETF ($MGK) up 2.9% (why did I sell!) and the Invesco S&P 500 Equal Weight ETF (RSP) up 1.0%.

Signals were mixed this week. Optimism about a debt ceiling deal emerged after President Biden’s meeting with congressional leaders, but it waned when debt limit talks were paused according to Jake Sherman, a reporter for Punchbowl News. Some Federal Reserve officials expressed hawkish views, with Dallas Fed President Logan stating that current data doesn’t support a pause in June and St. Louis Fed President Bullard acknowledging the need for further rate hikes due to persistent inflation.

Treasury yields saw a decrease in the safety premium, especially at the short end of the curve, as investors considered the possibility of the Fed raising rates at the June FOMC meeting. The 2-year note yield rose by 29 points to 4.27%, and the 10-year note yield increased by 23 points to 3.69%. The bond market also reacted to positive sentiment about debt ceiling talks and favorable performance in regional bank stocks, with the SPDR S&P Regional Banking ETF (KRE) rising 7.8% and Western Alliance (WAL) experiencing a 24.9% increase on news of deposit growth.

Earnings reports from key retailers marked the week, with mixed reactions seen for Dow components Home Depot ($HD) and Walmart ($WMT). Target ($TGT) received a positive response, while Foot Locker ($FL) faced a significant decline of 27% after reporting disappointing earnings and issuing dismal guidance. The majority of S&P 500 sectors recorded gains, with information technology, consumer discretionary, communication services, and financials leading the way. However, the utilities sector experienced the largest decline, followed by real estate.

Monday:

Monday ended on a relatively positive note, although the price action was dismal with below-average volume. The major indices closed near their daily highs, posting modest gains. While there was initial weakness in mega-caps, some stocks in this category rebounded to finish with gains, contributing to the overall performance. Meta Platforms ($META) stood out with consistent outperformance after receiving an upgrade, while the Vanguard Mega Cap Growth ETF ($MGK) closed with a 0.2% gain.

The market’s inclination to buy mega-cap stocks reflected concerns about the uncertain debt ceiling situation, as President Biden’s meeting with congressional leaders on the topic approached. Regional bank stocks experienced a rally, providing support to the broader market. The SPDR S&P Regional Banking ETF ($KRE) had a 3.2% gain, and the S&P 500 financials sector closed near the top of the leaderboard with a 0.8% increase.

In terms of M&A activity, Newmont plans to acquire Newcrest for approximately $19 billion, and Oneok plans to acquire Magellan Midstream Partners for around $18.8 billion, including assumed debt. The market also saw positive regulatory developments, as EU regulators approved Microsoft’s acquisition of Activision. On the economic data front, the New York Fed Empire State Manufacturing Survey had a significant decline, with the new orders index dropping 53 points to -28.0, pointing to a sharp decrease in demand.

Tuesday:

The market looked in step with previous days, with limiting factors keeping it in check while gains from mega-cap stocks provided some support. However, the major indices closed near their lowest levels of the day following news that President Biden would be cutting his G-7 trip short. There was no information available about Tuesday’s debt ceiling meeting, but House Speaker McCarthy noted that the two sides remained far apart, while Senate Majority Leader Schumer emphasized the need for bipartisan agreement to avoid a default.

Despite losses in the overall market, gains in the mega-cap space helped mitigate the decline. The Invesco S&P 500 Equal Weight ETF ($RSP) dropped 1.4%, while the Vanguard Mega Cap Growth ETF ($MGK) recorded a 0.1% gain. The Dow Jones Industrial Average experienced the largest decline, partly due to Home Depot’s disappointing fiscal Q1 sales and guidance.

Retail sales data for April were released, indicating a 0.4% increase in total retail sales, but adjusting for inflation showed essentially flat sales, implying weaker demand. China also reported weaker-than-expected retail sales, industrial production, and fixed asset investment for April, contributing to concerns about global growth. Additionally, the FTC’s lawsuit to block Amgen’s acquisition of Horizon Therapeutics weighed on the stock and added further headwinds for equities.

Economic data for Tuesday included the April retail sales, industrial production, and the NAHB housing market index.

Retail sales came in at +0.4%, under the expected 0.7%. These readings are not inflation adjusted, so when making that adjustment, the reading is closer to flat. Growth in sales, therefore, was mostly due to price increases and not necessarily an increase in demand.

The industrial production report came in at +0.5%, compared to a flat expectation. Capacity came in just 10 basis points under the expectation at 79.7%. Manufacturing output bounced back in this reading, supported by gains in the output of vehicles and parts, defying a hard-landing economic scenario.

The NAHB housing index came in at 50, the 5th straight monthly increase and the highest level since July 2022. The index was expected to be flat at 45. Current sales, expectations, and buyer traffic were all higher.

Wednesday:

The stock market was soft right out of the gate, but found upside momentum. Gains built, aided by some short-covering activity. The major indices all closed near their best levels of the day.

Positive responses to earnings and other corporate news, along with an emerging hope that the president and congressional leaders are more aligned with debt ceiling negotiations, pushed things higher. Still, no deal has been reached and uncertainty remains in play. That uncertainty was not enough to offset Wednesday’s strong showing, a potential pro-cyclical bias.

Many stocks came along for the rally; 9 of the 11 S&P 500 sectors closed green. The financials sector lead with 2.1%. This came after Western Alliance ($WAL) said its deposits have increased by more than $2 billion since the end of the first quarter. This news put a bid in the bank stocks and the SPDR S&P Regional Bank ETF (KRE) jumped 7.4%.

Economic data included the MBA mortgage applications, housing starts and building permits.

The Mortgage Applications Index fell 5.7% with purchase applications falling 4.8% and refinancing applications falling 8.0%.

Total housing starts increased 2.2% MoM in April to a seasonally adjusted annual rate of 1.401 million compared to a consensus of 1.405 million. Single-family starts were up 1.6% MoM, but only because of a strong 59.5% increase in the West; single-family starts fell in all other regions.

Building permits fell 1.5% MoM to 1.416 million from an upwardly revised 1.437 million  in March. Single-unit permits rose 3.1% MoM, led by gains in all regions. The weakness in permits was driven by a 9.7% decline in permits for 5 units or more.

The key takeaway here is that single-family starts and permits were up, which is a positive given the tight supply of existing homes for sale. Even so, the constraints of high financing rates and high prices are evident in single-unit starts being down 28.1% year-over-year and single-family permits being down 21.2% YoY.

Thursday:

It was another good day for stocks, building on Wednesday’s gains. The major indices traded in mixed fashion until a late afternoon surge higher. That move saw the S&P 500 break the 4,200 level for the 1st time since August 2022. Ultimately, the S&P 500 closed at its best level of the year, just a whisker shy of 4,200.

The midday lull was probably ongoing hesitancy about the debt ceiling. House Speaker McCarthy said he “sees a path” to getting the debt limit bill on the House floor for a vote next week, yet other press reports suggest a debt ceiling deal won’t be easy to reach.

Market participants were also reacting to some mixed economic data, including lower-than-expected jobless claims, a better-than-expected Philadelphia Fed Index for May, and weaker-than-expected existing home sales and leading economic indicators for April.

Nonetheless, the afternoon rally was fairly broad based, ratcheting up as the mega cap stocks took another leg higher along with the semiconductor stocks both having several names reaching new 52-week highs.

Friday:

The stock market kicked off this options expiration day on an upbeat note, but ultimately rolled. Opening gains had the S&P 500 back above the 4,200 level before the market turned lower middaywhen Fed Chair Powell began speaking at a panel discussion regarding perspectives on monetary policy.

However, stocks seemed to be responding to worries about the debt ceiling and regional banks, rather than Mr. Powell’s comments. Briefly, Mr. Powell said that inflation is “far above” the Fed’s objective, but also said that rates may not have to rise as much because of credit conditions. These views were comparable to what he shared during his press conference following the FOMC meeting earlier this month, so they weren’t necessarily surprising.

What was surprising was the prior mentioned tweet from reporter Jake Sherman that “debt limit talks between the White House and House Republicans have been paused, per multiple sources involved in the talks.”

Ultimately, the major indices were able to climb somewhat off their lows to close with modest losses; however, the S&P 500 remained pinned below 4,200 on a closing basis.

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Market Update

Stock Market Recap & Outlook (5/12­­­­/23) – Debt Ceiling Concerns Overshadows Inflation Progress

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Dividend Dollars’ Outlook & Opinion

Last week we ended the outlook with a call that the early week would be fairly directionless leading into CPI, which could then lead to a green week on positive inflation reception. We were only half correct here, we nailed the catalyst and the lead up, but not the direction afterwards.

The Consumer Price Index report rose 4.9% for April year-over-year, down from 5% in March and the 5% consensus. The Producer Price Index came in at 2.3% for April, down from 2.7% in the prior month and under the 2.5% consensus. Both readings are still well above the Fed’s 2% inflation target, though they have been steadily falling since June of last year. Historically, both reports tend to have an outsized effect on the market (CPI more so than PPI), however, this go around they seemed to be overshadowed by debt ceiling concerns that muted their effects. Earnings surprises also seem to have muted moves up in stock price, likely for the same reason.

The Q1 earnings season wrapped up this week with 32 S&P 500 companies giving their reports. 21 of them beat EPS estimates. On average, this season has beat EPS estimates 78% of the time which is above the 10-year average of 73%. Despite the strong performance in earnings, the average stock price appreciation after an earnings beat was 0.3%, compared to a 5-year average of 1%. Meanwhile, companies that reported a surprise to the downside experienced and outsized moved down of 4.1% on average compared to the 5-year average of down 2.2%. The numbers show that the market is rewarding positive surprises less while punishing negative surprises.

While $SPY and $VIX were fairly flat this week, the technical have not changed much. Stocks continue to prove the naysayers and recession doomsday-ers wrong by performing better than most expected for 2023. SPX remains well above is significant moving day averages and the consolidation around 4,100 is not in its 6th straight week. At these levels, falling back down to the bear market low from October would take a 13% decline while a move higher needed to declare a new bull market is less than 4% away. It seems nothing is really moving the market much at the moment, despite debt ceiling battles, inflation, and ongoing recession warnings.

Next week’s economic calendar is light. With inflation continuing to moderate, political analysts expecting a debt ceiling deal, and a labor market hardly showing signs of slowdown, it looks like we may have another sideways week. OI changes on VIX, SPX, and equities are all mixed, same with open interest put call ratios. None of the market sentiment indicators that I follow have had extreme readings, and there were just a few more downgrades than upgrades this week. The indicators seem to be balanced, giving me a neutral outlook for next week.

Weekly Market Review

Summary:

The Nasdaq Composite closed the week with a slim gain while the S&P 500 closed with a slim loss. The 4,100 level was an important area of support for the S&P 500 this week. Mega-cap stocks held up the broader market, led by Alphabet who rose 11.0% this week following its Developers Conference.

The Fed’s Senior Loan Office Opinion Survey on Bank Lending Practices (SLOOS) confirmed that lending standards have tightened and banks expect to tighten standards across all loan categories over the remainder of 2023. PacWest was a losing standout from bank stocks, falling 21.0% this week after announcing that its deposits fell 9.5% for week ending May 5th and cut its dividend to one penny.

The debt ceiling angst weighed on the market after Yellen warned of chaos if the situation is not resolved. President Biden met with congress leaders on Tuesday to discuss the ceiling, but did not calm market concerns. He was supposed to meet with them again on Friday, but that got postponed to next week.

Inflation readings showed continued month-over-month moderation in inflation which may at least spur the Fed to keep its policy rate on hold in June. Economic readings culminated on Friday with the consumer sentiment survey that showed an increase in inflation expectations.

Disney was a drag on sentiment after reporting a decline in Disney+ paid subscribers. Energy, materials, and industrials sectors showed some of the steepest declines for the week while communication services and consumer discretionary sectors were the lone outperformers boosted by their respective mega-cap components.

Monday:

The market was mixed and in a wait-and-see mode leading into the SLOOS. The loan officer report confirmed what most were already expecting following the regional banking issues that began two months ago. Lending standards have tightened and are expected to remain tight across all loan categories through 2023.

The day mostly closed flat and was supported by mega-cap gains while regional banks rolled over at the end of the day. $KRE was up 2.7% in the morning and closed with a 2% loss. Concerns of the debt ceiling was a distracting factor with statements from Yellen and planned meetings with President and Congress leaders.

Tuesday:

The market traded flat and slightly weak in from the CPI report expected on Wednesday. Ongoing debt ceiling concerns continued to mute most moves as Biden and Congressional leaders met at 4PM on Tuesday to discuss the ceiling.

The $DIA outperformed on the day largely due to a gain by Boeing on the news that they received 150 orders for 737 Max-10 plans from Ryanair, with an option for 150 more. Data for the day was only the NFIB Small Business Optimism Index for April with fell to 89, a 10 year low.

Wednesday:

Wednesday was a mixed day as the $DIA was mostly negative while $QQQ and $SPY outperformed with gains in the mega-cap space. Price action was muted till a later afternoon rebound took place, leaving the indices closing comfortably above their opens. $GOOG was a big driver of support as it rallied on the back of its Developer’s Conference presentation, which included updates on its AI efforts.

Initially, the market responded positively to the April Consumer Price Index report, but a closer look left investors feeling uncertain about the Fed’s policy path. Total CPI was up 4.9% YoY, down from 5%, which marks the first sub 5% reading in two years. Core CPI was up 5.5% YoY down from 5.6%. The report may sway the Fed to hold rates at their current level at their next meeting in June, on the other hand, a 5% reading is not going to convince the Fed to cut rates any time soon. Especially with the fact that the shelter increase of 0.4% MoM was the largest contributor to the increase in total CPI.

Other data included the MBA Mortgage Application Index which rose 6.3% with refinancing activity up 10% and purchase applications up 5%. The April Treasury budget was also released which showed a surplus of $176B compared to $308B last year. The report showed that individual income and corporate tax receipts were $465B which is 32% less than April of last year.

Thursday:

The indices closed mixed near their highs of the day on Thursday, yet the overall market was a bit weaker then the indices indicated. Growth concerns are creating a rush to safety buying interest in mega-caps which is driving a lot of the price action. The Vanguard Mega Cap Growth ETF rose 0.2% while the equal weighted S&P 500 ETF fell 0.5%.

As previously mentioned, news about $PACW’s deposit loss and dividend cut paired with $DIS’s 2% loss of subscribers added to growth concerns. This paired with the continued looming debt ceiling threat is creating a rough market environment.

Data for Thursday included the April Producer’s Price Index and the Weekly Initial Claims. PPI came in at 0.2% compared to -0.4% last month, showing continued moderation in inflation. Weekly claims was 264k, up from 242k last week. Continuing claims also showed some gains. Initial claims hit their highest level since last October, tracking in a direction that reflects an initial loosening in our tight labor market.

Friday:

Friday closed out the week on a more upbeat note, despite the negative price action for most of the day. The late afternoon bounce left the indices with only modest losses on a low volume day. Money flows reversed somewhat on Friday as $MGK fell 0.3% compared to the 0.2% loss in $RSP, showing a more mixed market breadth compared to Thursday.

Economic data brought us the April Import/Export prices which followed suit with the CPI and PPI reports with its own moderation in inflation pressures on a YoY basis. Import prices rose 0.4% compared to a 0.8% loss last month. Export prices were up 0.2% compared to a 0.6% decrease prior. Year over year figures were flat for imports and down for exports.

The May Consumer Sentiment report showed worse expectations with a reading of 57.7 compared to a 63.5 reading last month, and a 62.9 estimate. Consumer sentiment has weakened on concerns about the economic outlook which threatens discretionary spending and took out nearly half of the index’s gains since bouncing from its last all time low in June.

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars