Fed Does What It Said, Markets Convulse but Finish Relatively Flat.

Fed Does What It Said, Markets Convulse but Finish Relatively Flat.

May 6 Market Recap – Fed Does What It Said, Markets Convulse but Finish Relatively Flat. 

Indices 

Dow 32,899 (78) or (0.24%) 

Nasdaq 12,144 (190) or (1.5%) 

S&P 4,131 (8) or (0.19%) 

USD10Y 3.123% +23.6bp or +8.2% 

The Fed, the Fed, the Fed 

The Fed announced that they would increase the Federal Funds rate by 0.50% as expected. Also, as expected they announced that they will begin to reduce their balance sheet beginning June 1. Markets rallied strongly on the Fed announcement when Fed Chair Powell disavowed a 0.75% rate hike for the time being. Then on Thursday, Wednesday’s rally was sold and sold hard. Which recalls the saying that “the markets can remain irrational far longer than one (investor) can remain solvent. 

Economic Data 

The April Non-Farm jobs report was better than expected and initial jobless claims continue to hover around 200,000/week. Continuing claims are at a multi-decade low. March Job Openings (JOLTS) showed 11.5 million job openings. April Manufacturing and Services PMI was a mixed bag but were relatively in line with expectations.  

Covid Update 

Infections grew by 52% again for the second week in a row. Hospitalizations are up again, and the death toll has gone from decreasing rapidly to flattening out and increasing slightly over the last two weeks. The trend in deaths bears watching. 

Covid 14-Day Daily Moving Averages 

Next Week 

With earnings season all but over, all eyes will be on the Core CPI number on Wednesday. Anything in line with expectations of 0.4% month over month or last month’s 6.4% will be viewed as a disappointment and markets should react negatively, anticipating further rate hikes from the Federal Reserve. Lower numbers, conversely, should be cause for market optimism and perhaps spark a market rally. 

Market Data Points Next Week 

• Monday – n/a 
• Tuesday – n/a 
• Wednesday – April Core CPI 
• Thursday – Initial Jobless Claims. April PPI (final). 
• Friday – May University of Michigan Consumer Sentiment (preliminary). 

May 6 Market Recap Trading… 

Monday – Dow +84 to 33,061, Nasdaq +201 to 12,536, S&P +23 to 4,155, USD10Y +10.9bp to 2.996% 

• Six of the eleven S&P sectors traded up today led by Communication Services, Technology, and Energy.  
• WTI Crude traded up slightly to settle at $105.89. 
• April S&P and ISM Manufacturing PMI missed at 59.2 and 55.4%, respectively vs expectations of 59.7 and 57.8% respectively. Both numbers still indicate an expansionary environment. 

Tuesday – Dow +67 to 33,128, Nasdaq +27 to 12,563, S&P +20 to 4,175, USD10Y +3.6bp to 2.960% 

• Nine of the eleven S&P sectors traded higher today, led by Energy, Financials, and Real Estate.  
• March Job Openings and Labor Turnover Survey (JOLTS) showed 11.5 million job openings, up 200,000 from last month and 300,000 higher than expected. 
• Earnings: Advanced Micro Devices (AMD) jumped 6% after beating on both revenues and earnings, Airbnb (ABNB) rose 3% post-close after reporting a beat on top and bottom-lines and guided higher, Starbucks (SBUX) traded up 2% with an inline earnings report and a beat on revenues. Lyft (LYFT) was the big loser, tumbling 23% despite beating on revenues and posting a profit but guiding the second quarter lower. 

 Wednesday – Dow +932 to 34,061, Nasdaq +401 to 12,964, S&P +124 to 4,300, USD10Y (4.3bp) to 2.917%. 

• The FOMC announced, as expected, a 0.50% rate hike and Chairman Powell disavowed a future 0.75% hike which sent markets rallying strongly.  
• The Fed also announced that they will begin to reduce their balance sheet beginning June 1. Initially, Treasury holdings will be reduced by $30 billion/month for three months at which time the amount will increase to $60 billion/month. Drawdown of agency and mortgage-backed securities will initially be capped at $17.5 billion/month for three months after which time the amount will be increased to $35 billion/month. 
• All eleven S&P sectors traded higher today led by Energy, Communication Services, and Technology. 
• April ADP Employment showed a disappointing 247,000 jobs added vs expectations of 390,000. 
• April Global S&P and ISM Services PMI beat and missed respectively at 55.6 vs 55 and 57.1% vs 58.3%. 
• Earnings: Ebay (EBAY) and Etsy (ETSY) both beat top and bottom-line expectations but both e-commerce firms guided down their current quarters. EBAY and ETSY traded down 6.47% and 10.96% respectively in after-hours trading. 

 Thursday – Dow (1063) to 32,997, Nasdaq (647) to 12,317, S&P (153) to 4,146, USD10Y +14.9bp to 3.066%. 

• All eleven S&P sectors traded down today led lower by Consumer Discretionary, Technology, and. Communication Services. 
• Jobless claims were higher than expected at 200,000 claims vs 182,000 expected and last week’s slightly revised higher 181,000 print (originally reported as 180,000 claims). Continuing claims decreased to 1.38 million people. 
• June WTI Crude traded up to $108.73/bbl.  
• Earnings: DoorDash (DASH) lost more money than expected but reported 35% revenue growth in the quarter, which sent the stock soaring up 35% in the extended session. 

Friday – Dow (98) to 32,899, Nasdaq (173) to 12,144, S&P (23) to 4,123, USD10Y +5.7bp to 3.123% 

• Nine of eleven S&P sectors traded down today led lower by Materials, Consumer Discretionary, and Communication Services. 
• June WTI Crude continued to rally to $110.61/bbl.  
• April Non-Farm Payrolls beat expectations with a gain of 428,000 jobs vs expectations of 400,000. 
• The April Unemployment Rate was 3.6% vs 3.5% expected. 
• The Labor Participation rate fell for the first time in seven months to 62.2% from 62.4%. 

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