Tag: Inflation

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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

    Categories
    Earnings Economics Market Recap Stock Market

    Stock Market Recap & Outlook (2/24/23) – Inflation is back! FOMC minutes and PCE shock!

    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!

    Weekly Market Review

    This shortened holiday week ended up being another losing one, held down by the same issues that beat down price action last week. There’s a lingering sense that the market was due for consolidation and a growing idea that the Fed will keep rates higher for longer.

    Fed concerns were the focus midweek when the FOMC minutes for the February 1st meeting were released. They weren’t aggressively hawkish or dovish, their default position continues to be a rate-hike position.

    Markets are aware that many of the data releases since the last FOMC meeting are not likely to change the Fed’s mindset. A stronger than expected January employment report, the stronger than expected ISM Services PMI, the January CPI and PPI reports, all capped off by this week’s stronger than expected core PCE, which is the Fed’s preferred inflation measurement.

    After the hot PCE reading on Friday, St. Louis Fed President Bullard said that “it appears that the Fed may be able to disinflate in an orderly manner and achieve a soft landing”.

    Prior to that, there was some movement higher on Thursday, following NVIDIA’s ($NVDA) earnings and positive guidance. However, the market primarily had downside bias this week and took out its 50-day moving average before testing the 200-day average.

    The Treasury market was boosted off of the price action in equities this week, creating tough competition for returns from stocks. The 2-year note rose to 4.78% and the 10 year note rose to 3.95%. The dollar index also rose this week by 1.4%.

    None of the 11 S&P sectors made gains this week. Energy was close at -0.04% while consumer discretionary and real estate were hit the hardest will losses over -4%.

    Below are summaries of daily price action throughout the week:

    • Tuesday
      • The week started lower on increasing geopolitical tensions and continued money being taken off of the table following last month’s rally for a close under 4,000.
      • News reports state that China’s President Xi Jinping may go to Moscow in April or May to meet with Putin and encourage peace talks, a view that seems to run counter to the assumed supportive relationship between Xi and Putin
      • Disappointing guidance came from Home Depot ($HD) and Walmart ($WMT) and helped push consumer discretionaries down to last place.
      • The January Existing Home Sales fell -0.7% to 4 million (consensus 4.12). Key takeaway is that sales are still under pressure of high mortgage rates and economic uncertainty. This keeps homes on the market for longer and may cause a moderation in median prices over time.
    • Wednesday
      • The day started on a positive note, but moves were modest as the market waited for the release of FOMC minutes.
      • The FOMC minutes indicated that “more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path.” A number of members also wanted raise rate by 50 points at the meeting
      • .Immediately when the minutes were released, price action in the market whipsawed before settling into a slow decline
    • Thursday
      • This day was a more upbeat day, breaking a 4 day losing streak on $SPY following the earnings and good guidance from NVIDIA.
      • Prices got pushed down as other disappointing earnings came out ($EBAY, $DG, and $DPZ are some names that come to mind in that regard). The key takeaway was that consumers are slowing their discretionary spending causing slower growth and further cuts to earnings estimates in the sector, all while the Fed looks intent to raise rates higher.
      • Downside pushed the S&P below the 4,000 level and its 50 day SMA. Buyers stepped in and finished the session with decent gains.
      • Initial Jobless Claims declined to 192k (consensus 200k) and continuing claims decreased to 1.654M. The low levels of initial claims contribute to expectations for the Fed keeping rates higher longer.
      • The second Q4 2022 GDP estimate showed a downward revision to 2.7% (consensus 2.9%). The drive down was moved by less personal spending which was partially offset by an increase in non-residential investment. This could be an off-putting mix for the Fed. Growth and inflation is still running hot, one of them must give.
    • Friday
      • The week ended with board-based selling following the hotter than expected PCE reading.
      • The Core-PCE price index rose 4.7% year-over-year versus 4.6% in December. Real disposable income was up 1.4% month-over-month and personal savings rate increased to 4.7%, indicating that consumers can keep spending.
      • The key was that the report showed inflation, not disinflation, and good spending potential which can keep the economy running above potential. That combo causes concerns about inflation being sticky and prompting the Fed to stick to tightening for harder and longer than expected.
      • The S&P closed below its 50 day SMA and tested its 200 day SMA, recovering a bit from the lows of the day before close.

    Dividend Dollars’ Outlook & Opinion

    That’s it for the recap. Now for my opinion!

    This week was another week of consolidation and modest losses that we have been discussing in this outlook section for 3 editions now.

    This was a light week in terms of quantity of economic data, however, the few releases we did have were heavy hitters. The Core PCE reading confirmed that the inflation moderation which began in June of last year has mostly leveled off, and at a level that is much higher than the Fed would like. Pair that with the fifth straight week of initial jobless claims under 200k, and you can see that the labor market is strong and able to withstand further tightening.

    Earnings continued this week with 55 S&P 500 participants reporting. 44 of them beat EPS expectations. Overall, 98% of the S&P stocks have reported. Below so far are the aggregate beat rates this quarter compared to prior quarters. These figures are tracked using MarketBeat.

    Now moving on to technicals. Last week pointed to slightly bearish with high volatility, and that was what we got! Within a month after the SPX broke through the long-term downtrend (red channel), 4,100 level (top green line), and hit a technical golden cross, did it struggle to keep strength. SPX broke through support at the 50 day SMA on Friday, and has the 200 and 100 day SMA not far under it for support and are converging with the downtrend. Who knows if these will hold, but they should at least slow the downtrend.

    Other metrics have shifted moderately bullish. VIX put OI grew more than call OI, SPX call OI grew more than puts, and call OI for major ETFS also grew more than puts for the week, a moderately bullish change. However, the Vix volume put to call ratio moved from neutral to moderately bearish this week at 0.34. SPX volume put to call ratio looks neutral.

    Overall, technical have deteriorated and inflation is not moderating. With earnings season basically over, three weeks till the next inflation report, four weeks till the next rate hike, the market may move on news headlines and Fed speak more than usual in the near term.

    Technicals and inflation look we move down, a number of metrics have improved and look like we move up, and major economic releases are a few weeks out. Short term time frame looks to be volatile and set up for an oversold bounce before chop and downtrend continues. With that said, I’m neutral for next week and could see the market being moderately down or up. This is one of those weird weeks looking forward where all this analysis may not really help!

    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 Recap Market Update Stock Market

    Stock Market Recap & Outlook (2/17/23) – Continued Earnings and Mixed Week

    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!

    Weekly Market Review

    The major indices ended down this week for the second week in a row, first time in 2023. Instability in the market was driven by reactions to economic releases and Fed comments throughout the week.

    MoM inflation data in the January Consumer Price Index (CPI) was not pleasing, but the report showed continued deceleration on a YoY basis. Services inflation, the section that the Fed seems to care about the most, was the exception with a jump to 7.2% YoY from 7.0% in December.

    Then a stronger than expected January retail sales report, higher-than-expected producer price data for January, and another remarkably low level of weekly initial jobless claims were released in the following days.

    The positive economic news paired with accelerating services inflation, fueled concerns about the possibility of the Fed raising rates more and keeping them higher for longer than previously expected.

    Fed comments this week seemed to corroborate those concerns. Cleveland Fed President Mester said she advocated for a 50-basis point rate hike at the last meeting,  St. Louis Fed President Bullard shared the same sentiment, and Fed Governor Bowman said that hikes are needed until “a lot more progress” has been made on inflation.

    5 of the 11 S&P 500 sectors made gains week led by consumer discretionary (+1.6%) and utilities (+1.1%). The energy sector (-6.3%) was the worst performer by a long shot with falling oil prices.

    Below are breakdowns of daily action for the week.

    Monday:

    • A quick dip right out of the gate had the S&P 500 slip below the 4,100 level before buyers stepped in and a rally effort took root.
    • Mega caps were driver of index gains. Meta Platforms ($META) and Microsoft ($MSFT) each rose more than 3.0% on Monday with no specific catalysts.
    • The NY Fed’s Survey of Consumer Expectations showed that inflation expectations are stable, but household income growth expectations have dropped.
      • “Median inflation expectations remained unchanged at the one-year-ahead horizon, decreased by 0.2 percentage point at the three-year-ahead horizon, and increased by 0.1 percentage point at the five-year-ahead horizon, to 5.0%, 2.7% and 2.5%, respectively.”Disagreement on these figures decreased slightly YoY
      • The median expected growth in household income dropped to 3.3%. This is the largest one-month drop in the 10-year history of the series and is the first drop since last September.

    Tuesday:

    • Tuesday’s trade was mixed as investors digested the January Consumer Price Index (CPI) released in early hours.
    • Total CPI increased 0.5% MoM (in line with consensus) and is shown in the graph below. Core-CPI increased 0.4% MoM (in line with consensus).
    • On a YoY basis, total CPI was up 6.4% (the smallest 12-month increase since October 2021) and core-CPI was up 5.6% (the smallest 12-month increase since December 2021). The YoY levels were not as low as expected AND services inflation hit 7.2% YoY from 7.0% last month.
    • The key CPI takeaway is that there has been a clear deceleration from peak inflation; however, the inflation rates are nowhere near low enough for the Fed to even think about cutting rates this year.
    • The market moved higher shortly after the open. The early gains faded, and the S&P 500 briefly slipped below the 4,100 level. There was a bounce late day and closed the session above intraday lows. 
    • Treasury yields seemed to have a more concrete reaction to the CPI data as yields jumped and closed higher.

    Wednesday:

    • Ahead of Wednesday’s open was the retail report, which reflected continued strength in the economy, but left the market concerned that it boosts the likelihood of higher rates. Total sales in January were up 3.0% MoM (consensus 1.7%) and sales, excluding autos, up 2.3% ( consensus 0.8%).
      • The key takeaway from the report is that consumers were spending freely on goods in January despite inflation pressure; in fact, every single sales category showed a MoM increase, led by a 7.2% surge in sales at food services and drinking places.
    • The January Industrial Production came in flat (consensus 0.5%) and Capacity Utilization came in  78.3% (consensus 79.1%).
      • The soft reading for January can be attributed entirely to a drop in utility output. Otherwise, there was some strength in mining and manufacturing output, the latter of which saw advances in durable, nondurable, and other manufacturing activity.
    • Equities started down, but true to 2023 form, investors stepped in to buy the early weakness. The main indices all closed the session at or near their best levels of the day.
    • High-beta stocks, uplifted by the positive earnings news and guidance from the likes of Airbnb ($ABNB), Roblox ($RBLX), and Analog Devices ($ADI), helped Wednesday’s gains.

    Thursday:

    • Thursday was down in the start and the finish. The negative bias was brought on by the higher-than-expected Producer Price Index (PPI) number for January and another low level of weekly initial jobless claims, which fueled concerns that the Fed will not pause its rate hikes in the near future.
    • January PPI came in at 0.7% shown below (consensus 0.4%) and Core PPI at 0.5% (consensus 0.3%).
      • The key takeaway from the report for the market is that headline inflation was hotter than expected on a monthly basis and causes concerns about inflation pressures persisting at higher levels for longer than expected.
    • Weekly Initial Claims shown below came in at 194K (consensus 203K) and Continuing Claims at 1.696 million
      • The persistence of initial claims below 200,000 reflects a very tight labor market, and a reluctance to cut workforces, which will continue to drive worries at the Fed about tight labor market conditions feeding into stickier wage-based inflation pressures as reflected in high service readings.
    • The market recovery mid-day coincided with buyers stepping in when the S&P 500 breached the 4,100 level, along with Treasury yields backing down from their post-data release highs.
    • There was a steep reversal in the last hour that had the major indices close the session near their worst levels of the day, which took the S&P 500 below 4,100 again.
    • The late afternoon plunge was precipitated by Fed speak we previously mentioned (except for Mester, who spoke prior to the plunge).

    Friday:

    • The stock market opened weak continuing Thursday’s downside momentum.
    • Treasury yields began to settle and stock sentiment shifted slightly higher.
    • Ultimately, the indices closed the session near their best levels of the day even though some mega cap names were not following.

    Dividend Dollars’ Outlook & Opinion

    That’s it for the recap. Now for my opinion!

    This week was another week of consolidation and modest losses and matched perfectly with the “technicals suggest a flat or slightly bearish week ahead” call from last week’s report. This is the second week in a row of this since I called for a slowdown in the market outlook from 2/3/23.

    We had two key inflation reports with the CPI and PPI, both came in well above their estimates causing a fair amount of volatility. One flaw from this report last week was that I did not touch on the coming PPI report. Historically, the PPI tends to not move the market as much as the CPI, however the bigger miss on PPI proved otherwise this week.

    As you can see in the chart below, while still quite historically high, the YoY PPI (white) and CPI (blue) peaked in June of last year. They continue to trend lower.

    Earnings reports this week had 59 reports of the S&P 500 companies, putting us 81% of the way through earnings season. 41 of the 59 this week beat EPS expectations, below so far are the aggregate beat rates this quarter compared to prior quarters. These figures are tracked using MarketBeat.

    Now moving on to technicals. Only three weeks after the SPX broke above the long-term downtrend (red channel), broke above resistance at 4,100 (top green line), and hit a golden cross (white arrow) and the SPX has struggled to hold the support line at 4,100. The first half of the week looked decent, but the last two days did not. Ending the week under that level and establishing a new low on 2/17 compared to the last low on 2/10 looks like a technical breakdown. SPX may be trending in the down direction in the near term.

    Other metrics have shifted into bearish territory since last week. SPX OI changes grew more this last week on the put side which is moderately bearish. ETF OI changes were slightly more on the put side, but not enough to make it bearish, I consider this to be neutral. The VIX open interest put/call ratio is down almost 10% this week, this movement follows the VIX index and implies that VIX is likely to go higher moderately in the near term. This is slightly bearish. SPXOICPR saw a similar move.

    Overall, metrics like the above, failure of near-term technical support, hawkish Fed comments, a concluding earnings season, a five week wait till the next FOMC meeting, and mixed economic data all make the market look fairly mixed or slightly bearish in the near-term. Next week is light on the economic data front except for Core PCE (the Fed’s preferred inflation gauge) out on Friday. With a holiday on Monday and an apparent waiting period till the big Core PCE report on Friday, I’m anticipating a choppy week till end of week with Core PCE determining the final move.

    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