Tucker Financial Weekly Market Review: May 17th, 2024

Weekly Market Report: May 17th, 2024

Markets took in a busy economic calendar last week with several readings on inflation and the consumer. There were also a large number of Fed speaking engagements which provided ample opportunity for Fed members to opine on macro trends. The week saw U.S. equity markets notch fresh record highs while a big rally in China (+5.6%) and India (+4%) pushed emerging markets up 3% on the week. Equity markets got an assist from falling bond yields which have fallen nearly 30 bps since late April, leaving 10yr UST yields at 4.42%. Commodities were up 1.7% on the week thanks in part to a healthy rally across both industrial metals and energy. The energy complex saw WTI oil close back up over $80 and natural gas was up 16.6% on the week.

Market Anecdotes

  • The S&P 500, now up 11.4% on the year, chalked up a fourth consecutive week of gains and took out the late-March record high last week while the VIX hit a 9-year low.
  • Second quarter GDP is currently modeled by the Atlanta Fed at 3.6% supported by personal consumption expenditure growth of 3.6% and domestic investment growth of 5.6%.
  • The three-month average unemployment rate moved up to 3.87% in April, 0.37% over the early 2023 low of 3.5%, technically triggering the Sahm Rule recession indicator.
  • A research note from BCA highlighted a potential scenario where a light recession compresses market valuations from 20x to 16x and we see a 10% decline in operating earnings which would be consistent with a 30% decline in the S&P 500 to 3,700.
  • Tight investment grade and high yield credit spreads are continuing to provide an “all-clear” indication with regard to implied credit risk in the market and seem to be shrugging off signs of a deteriorating labor market.
  • In a week with several disappointing economic data releases, The PBoC announced a $42b property market rescue package designed to absorb excess housing inventory, relaxing mortgage rules, and lowering down payment requirements for homebuyers.
  • Fourteen Fed speaking engagements, including Powell, gave markets ample talking points which amounted to a strong higher for longer narrative. Powell acknowledged the lack of progress on inflation in the first quarter and the possibility of a rate hike, albeit less likely than a cut.
  • A far too early observation on the upcoming U.S. general election is that both POTUS candidates share two market unfriendly campaign threads – a pointed nationalist/protectionist narrative and absolutely no discussion of addressing the massive federal budget deficit spending.

Economic Release Highlights

  • April YoY headline and core CPI readings of 3.4% and 3.6% and MoM readings of 0.3% were softer than expected and lower than March readings across the board.
  • Headline and core PPI registered 2.2% and 2.4% YoY respectively, with warmer than expected MoM readings (0.5% vs 0.3%) and (0.5% vs 0.2%).
  • The NFIB Survey improved from 88.5 to 89.7 in April but the trend this year has been down.
  • The Conference Board LEI returned to a contractionary reading (-0.6% vs -0.3%) after only one month in the plus column over the past two years.
  • Industrial Production in April slowed down from March levels and came in under consensus forecast on both Headline (0.0% vs 0.1%) and Manufacturing Output (-0.3% vs 0.3%) readings.
  • Retail Sales in April cooled notably relative to March and came in below consensus (0.0% vs 0.4%) while the Control Group unexpectedly declined by 0.3%.
  • A reading of 45 for April’s Housing Market Index was below consensus forecast and the March reading, both of which were 51.
  • Housing Starts (1.360M vs 1.435M) and Permits (1.440M vs 1.480M) both came in under consensus forecast.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Tucker Financial Weekly Market Review: May 10th, 2024

Weekly Market Report: May 10th, 2024

Markets last week didn’t have too much to absorb thanks to a very light economic calendar and the tail end of Q1 earnings reports. Equity markets continued to rebound from April’s volatility with the S&P 500 climbing 1.85%, a third consecutive week of gains. Developed international markets were also up 1.8% while the emerging markets finished flat despite another up week in China. Despite several Fed speaking engagements decorated by a wide variety of talking points, bond markets didn’t sniff out anything new. Interest rates were relatively flat across the board with the 10yr yield closing the week exactly where it began at 4.5%. Both the USD and commodity complex notched minor gains on the week with the Yen and Real losing ground versus the USD and commodity gains modest but widespread.

Market Anecdotes

  • The market consolidation period from the S&P 500 record high set on March 28th through late April has been followed by a healthy rebound.
  • FactSet noted Q1 blended S&P 500 earnings growth is at 5.4%, overwhelmingly bolstered by the ‘Mag Seven’ bottom line as evidenced by the fact that removing the top 5 contributors (Microsoft, Nvidia, Meta, Amazon, Alphabet) blended earnings would be -2.4%.
  • Eleven Fed speaking engagements last week gave investors a fresh dose of the higher for longer narrative as it pertains to the Fed funds rate and the FOMC objective of reducing inflation back toward its 2% target.
  • Fed funds futures are reflecting a consensus of September marking the formal Fed pivot with the likelihood of at least one cut currently priced at 61%. If a cut is delivered in September, it will most certainly be greeted with political handwringing given its proximity to the general election.
  • The Fed’s Survey of Loan Officers published last week showed weaker loan demand across the board and continued tightening standards for CRE and C&I loans with particular scrutiny on credit cards.
  • The National Association of Realtors noted the combination of high prices and high mortgage rates have taken U.S. home affordability to the lowest on record.
  • A Bloomberg article updated what may be one of the most important charts for investors to keep top of mind contrasting the short- and longer-term horizon returns of core asset classes (stocks, bonds, cash) with a clear positive skew growing in lockstep with time horizon.
  • With the risk-on cyclical tailwind of 2023 behind us, the lagging healthcare sector as a counter-cyclical with a new contract cycle (pricing power) tailwind over the coming year is taking shape as a potentially interesting fundamental play.
  • Global central bank meetings last week included the BoE projecting a more dovish tone than expected and the Riksbank became the second G10 central bank to cut (25 bps to 3.75%).
  • One clear consequence of conflict in the Middle East is the re-routing of global shipping traffic. Suez Canal daily ship traffic of less than 30 is down over 50% and volumes are down over 70%. This is mirrored with a commensurate increase in traffic around the Cape of Good Hope.
  • A tongue in cheek observation by BCA noted that if the SPR were a hedge fund run by the current U.S. administration, an average oil purchase price of $83 and average selling price of $95, has ‘Biden Capital’ outperforming the WTI Oil index by approximately 7%.

Economic Release Highlights

  • The JPM Global Composite PMI (C,M,S) registered (52.4, 50.3, 52.7) respectively, solidly in expansionary territory.
  • Weekly jobless claims of 231k increased by 22k and came in above expectations (231k vs 212k), taking the 4-week average 10k higher to 215k.
  • May’s UofM Consumer Sentiment Index registered 67.4, well below consensus expectation of 77 and last month’s reading of 77.2.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Tucker Financial Weekly Market Review: May 3rd, 2024

Weekly Market Report: May 3rd, 2024

Last week markets took in an FOMC meeting, a large dose of Q1 earnings, and a closely watched economic calendar. A soft jobs report and outright rejection of interest rate hikes by Jerome Powell pushed bond yields lower for the week, taking the 10yr UST down to 4.5%. Cooling growth and labor markets seemed to be welcomed by the equity markets where both domestic and international markets managed respectable gains on the week. The U.S was up 0.55% while developed and emerging markets were up 1.2% and 3.2% respectively. Commodities lost ground due to a 6.85% selloff in oil markets and the USD weakened 0.86%.

Market Anecdotes

  • The FOMC left the policy rate unchanged and announced a slightly larger than expected curtailment of the QT program, beginning June 1. Notably, Powell refused to acknowledge that hikes may be needed following recent inflation data and a strong ECI wage report.
  • While quarterly ECI data was warm, the labor market seems to be cooling with a miss on the headline establishment survey, cooler than expected monthly wage data, slower hiring intentions in survey data, and fewer job openings.
  • With 80% of the S&P 500 reported, 1Q earnings reports have taken shape with historically average beat rates and margins of 77% and 7.5%, respectively. Blended earnings and revenue growth are trending at 5% and 4.1%, respectively.
  • An interesting note from BCA regarding fundamentals of the technology rally is how positive fundamentals have underpinned the rally with 12mo fwd earnings for IT, Cons Discretionary, and Comm Services up 25.2%, 23.8%, and 34%, respectively since the beginning of 2023.
  • While junk bond spreads appear relatively sanguine right now at 3.16% over treasuries, history reminds us that when they turn, they can surge very quickly.
  • In the next 12 months, $18 billion of office loans converted into securities will mature—more than double the volume in 2023. Moody’s projects that 73% of loans will be difficult to refinance because of the properties’ income, debt levels, vacancies, and approaching lease expirations.
  • WTI oil had its worst week in three months, down 6.85% on easing tensions in the Middle East, a higher for longer Fed, and signs of slowing growth in the U.S.
  • The BoJ seems to have intervened in the currency markets a couple of times last week to defend the Yen with intraday price action showing tremendous volatility and the BoJ current account reflecting what were some likely intervention moves.

Economic Release Highlights

  • April payrolls grew by less than forecasted (175,000 vs 243,000) and the unemployment rate ticked up from 3.8% to 3.9%. Average hourly earnings came in lower than forecasted for both the MoM (0.2% vs 0.3%) and YoY (3.9% vs 4.0%) readings.
  • The Q1 Employment Cost Index came in at 1.2% QoQ, in excess of both consensus (0.9%) and prior quarter (0.9%) rates. ECI registered 4.2% YoY versus 4.3% in the fourth quarter of 2023.
  • The March JOLT Survey registered 8.488M job openings, below both the prior month (8.756M) and consensus estimate (8.700M).
  • April’s ISM Manufacturing Index came in slightly under forecast (49.2 vs 50.0). The ISM Services Index also missed to the downside (49.4 vs 52.0)
  • The Case-Shiller Home Price Index for February came in above consensus for both the MoM (0.6% vs 0.1%) and YoY (7.3% vs 6.7%).
  • Consumer Confidence Index registered 97.0 in April, well below consensus forecast of 104.0 and the estimated range of 103-105.6.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Tucker Financial Weekly Market Review: April 26th, 2024

Weekly Market Report: April 26th, 2024

Corporate earnings, discounting market rate cut expectations, and a full economic calendar were the key drivers in the market last week with a stagflation GDP narrative countered by healthy consumer spending and inflation dynamics. By week’s end, the S&P 500 (+2.7%) and NASDAQ (+4.2%) both closed with healthy gains, snapping their three- and four-week losing streaks, respectively. Healthy earnings reports from several big technology companies helped equity market sentiment. Bond yields edged slightly higher across the curve last week with the 10yr UST yield closing at 4.67% while the USD and commodity markets were relatively flat.

Market Anecdotes

  • Markets continued to calibrate rate cut expectations last week with warm inflation numbers, a slower than expected GDP report, and some deteriorating U.S. PMIs adding to the conversation.
  • Strong personal consumption and private investment in Q1 helped offset a seemingly disappointing GDP report which was dragged down by net exports, government spending, and private inventories.
  •  Employment data within the PMI survey show slowing demand for labor, particularly across service sectors.
  • The BOJ held steady last week following a move to hike rates for the first time in 20yrs. The Yen has weakened by 10% YTD (vs USD) and touched a 34-year low last week. A key driver behind the Yen is interest rate differentials which are influenced directly by Fed policy expectations.
  • Some momentum behind Chinese equities has brought YTD returns nearly in line with global averages. Key drivers include what were very compelling valuations, touching a 12yr low of 8x, and some equity market oriented central policies designed to foster confidence.
  • We’re at the midpoint of the U.S. earnings season with top- and bottom-line blended growth of 4% and 3.5%, respectively, with beat rates (77%) and beat margins (8.4%) generally in line with historical averages.
  • Bank earnings reports have revealed that the NII (net interest income) and NIM (net interest margin) party of 2023, which benefited from rising rates and garnered significant flight to quality deposits (SVB) is winding down.
  • U.S. government debt of $28t totals just over 100% of GDP with an average duration of 6-7 years and a healthy 30% reliance on foreign buyers/holders which is well below the 40% level we saw 5 years ago. For reference, outstanding Japanese government debt stands at 255% of GDP but the savings rate is 39% versus a mere 3.5% in the US.

Economic Release Highlights

  • Headline (core) PCE inflation in March came in slightly above YOY forecasts, (2.8% vs. 2.7%) and in line with MOM forecasts (0.3% vs. 0.3%). Personal Consumption again exceeded forecast (0.8% vs 0.6%) while Personal Income growth of 0.5% was in line.
  • First quarter U.S. GDP of 1.6% was well under consensus forecast of 2.3% and below the bottom end of the forecast range of 1.7%-2.8%.
  • April U.S. PMI (C,M,S) of (50.9,49.9,50.9) saw both services and manufacturing come in under their respective spot forecasts.
  • Global PMIs (C,M,S) in April for the Eurozone (51.4,45.6,52.9), UK (54.0,48.7,54.9), and Japan (52.6,49.9,54.1) reflected continued economic expansion overseas.
  • Durable Goods Orders in March grew 2.6%, higher than the forecast of 2.3%. Ex-Transportation (0.2% vs 0.3%) and Core Capital Goods (0.2% vs 0.2%) were generally in line.
  • The final UofM Consumer Sentiment index was revised lower from 77.9 to 77.2 and one-year inflation expectation ticked 0.1% higher to 3.2%.
  • New Home Sales in March registered 693K, ahead of the spot consensus 670k and above the high end of the 625k-685k range. Pending Home Sales grew 3.4% MoM, well ahead of the 1% consensus expectation.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Tucker Financial Weekly Market Review: April 12th, 2024

Weekly Market Report: April 12th, 2024

A closely watched economic calendar, ample Fedspeak, and ramp in geopolitical tensions made for a volatile week in the markets. A third consecutive warmer than expected CPI print was complemented by eleven Fed speaking engagements offering speculation and soft guidance on the thought process behind U.S. monetary policy. Additionally, the looming Iranian-Israeli conflict was well telegraphed in the media and came to fruition over the weekend. By the end of the week, global equity markets consolidated by 1.5%-2.5% and counter balancing forces of inflation pressures and flight to quality (geopolitical tensions) netted a second consecutive double rise in bond yields. Commodities declined slightly in what has otherwise been a very strong year and the USD rallied on what was likely a geopolitical driven flight to quality bid.

Market Anecdotes

  • Bond yields, Fed fund futures, currency markets, and equity markets each notched a reaction to Wednesday’s CPI print, FOMC minutes, and some weak UST auctions with interest rates surging, 2024 Fed rate cuts fading, a strengthening USD, and stock markets consolidating.
  • Interestingly, despite all of the noise across equity and bond markets, volatility measures of both have yet to move notably higher.
  • With last week’s weak reception of UST auctions and FOMC minutes reflecting interest in slowing the pace of Fed balance sheet runoff, a timely report from Alpine Macro examined the question, “Is fiscal policy driving the treasury selloff?” left us with a definitive answer of “maybe”.
  • The most recent J.P. Morgan Duration Survey shows, while duration indications had become very long coming (net 20%) into the year, they’ve fallen back toward neutral today as the bond market trend of November/December has reversed into 2024.
  • BCA highlighted the “Mel rule”, a labor market oriented leading recession indicator, similar to the “Sahm rule”, with the exception that the latter has been triggered and the former has not. Their historical accuracy of predicting recession makes them worth a listen.
  • First quarter corporate earnings kicked off last week in what will be a closely watched cycle given the inflection points and uncertain path forward with respect to the overall economy (growth/inflation/employment).
  • An encouraging indicator of global growth BCA noted last week is the carry trade where investors go long high yielding currencies and short lower yielding currencies.
  • The BoC and ECB met last week, both leaving rates unchanged. The ECB did set the table for a June cut, noting Euro area inflation has different dynamics than the U.S. and they’re largely pleased with the trajectory.
  • Last weekend’s attack on Israel by Iran in response to an embassy bombing puts geopolitics and oil infrastructure back on the front burner with early indications that cooler heads and diplomacy will be the goal of the U.S. and G7 nations.

Economic Release Highlights

  • March YOY headline (3.8 vs 3.7) and core (3.5% vs 3.5%) CPI along with MOM headline (0.4% vs 0.3%) and core (0.4% vs 0.3%) both came in slightly warmer than forecasted.
  • March headline PPI (YOY 2.1% vs 2.3% and MOM 0.2% vs 0.3%) registered below expectations while the core readings (YOY 2.4% vs 2.3% and MOM 0.2% vs 0.2%) were warm and in line, respectively.
  • UofM Consumer Sentiment in March came in at 77.9, slightly below consensus forecast of 79.0.
  • The March NFIB Small Business Optimism Index registered 88.5 versus consensus forecast of 89.9.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

Tucker Financial Weekly Market Review: April 5th, 2024

Weekly Market Report: April 5th, 2024

With first quarter earnings season on the doorstep, markets took in a full (and healthy) calendar of economic reports last week, several Fed speaking engagements, and a fresh dose of geopolitical risk. Market implications amounted to speculation surrounding the beginning of Fed rate cuts alongside persistently elevated geopolitical anxiety in the Middle East. Global equity markets were mixed with the U.S. and
developed international markets down approximately 1% countered by a rally in China and India to buy emerging markets. Bond yields moved notably higher on the back of strong growth and higher for longer narratives from FOMC members. Commodity markets also rallied on the growth backdrop and oil (+4.5%) received a strong bid thanks to fresh conflict between Iran/Syria and Israel.

Market Anecdotes

  • Fed speak last week saw 18 public comments from FOMC members mostly continuing the hawkish narrative we’ve seen steadily over the past few months, most notably clearly hawkish comments from Logan and Bowman in the wake of Friday’s strong jobs report.
  • Economic reports and Fed narratives have now taken expected rate cuts in 2024 down to 2.6 with a cut not fully priced into the futures market until September.
  • The recent uptick in U.S. inflation data stands in stark contrast to the EU where flash estimates of headline (2.4%) and core (2.9%) inflation are continuing to decline and surprising to the downside.
  • First quarter earnings, set to begin next week, are forecasted to grow 3.6% to $54.94. The first quarter saw a smaller than usual downward estimate revisions of 2.5% but both the number and percentage of companies issuing negative guidance increased more than usual.
  • Bespoke noted the historically high (bullish) bull/bear spread readings for both AAII and II surveys with the latter in the 99.3rd percentile since 1997, the former in the 84.5th percentile, and the average of the two in the 96.4th percentile – historically a notable contrarian indicator.
  • A counter data point to the deteriorating consumer thesis from Bespoke last week was their Consumer Pulse Survey reflecting a record seven consecutive months of a declining share of respondents indicating they Agree or Strongly Agree they are living paycheck to paycheck.
  • Rising federal debt has driven net interest costs to 2.77% of GDP with 3.1% expected by year end, a level not seen since peak deficit spending in 1991. The CBO estimates we’ll hit 3.9% by 2034, consuming over 22% of tax revenue.
  • Oil prices surged following Iranian/Hezbollah threats of retaliation on Israel for a strike on the Iranian consulate in Damascus. Tight supply dynamics, robust growth, and risks of conflict expanding beyond Gaza pose clear upward pressure on oil prices.

Economic Release Highlights

  • March payrolls came in well above consensus (303,000 vs 200,000) with the participation rate increasing 0.2% to 62.7%. The headline unemployment rate fell to 3.8% and average hourly earnings grew 0.3% MoM and 4.1% YoY.
  • The February JOLTS report of 8.756M job openings was in line with the spot forecast and essentially unchanged from the prior month.
  • The March ISM Services Index was slightly under forecast (51.4 vs 52.7) while the Manufacturing Index beat both the spot forecast (50.3 vs 48.3) and consensus range of 47.5 to 49.5.
  • The March JPM PMI Index (C,M,S) registered 52.3, 50.6, 52.5, a slight improvement over February’s 50.3 manufacturing and 52.4 services readings.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
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