Inflation Trumps Earnings, Markets Tumble (April 15 Market Recap)

Inflation Trumps Earnings, Markets Tumble

Indices 

Dow 34,451 (270) or (0.77%) 

Nasdaq 13,351 (360) or (2.63%) 

S&P 4,392 (96) or (2.1%) 

USD10Y 2.828% +11.5 bp or +4.2% 

Inflation Numbers Dominate Earnings 

Although earnings numbers were quite good in banking, airlines, and finance, nothing could distract the market’s attention away from the inflation news. The press breathlessly reported that March Core CPI was 0.1% higher than expected at 8.5% year over year, the highest number reported since December of 1981 but more importantly, the month-over-month figure rose only 0.3% vs 0.5% expected suggesting that inflation may finally be starting to moderate. However, the Producer Price Index (PPI) was higher than expected. Jobless claims, while a bit higher than expected, are still below 200,000/week and continuing claims fell to another multi-decade low. All of this is to say that the Fed will certainly raise rates again after their May 3-4 meeting by 50 bp, agree to reduce their balance sheet, and most likely raise rates another 50 bp after their June meeting before possibly pausing to review the inflation picture at that time. 

Follow Up to Last Week’s Fed Comments 

One of the reasons the market moved as much as it did on the release of the Fed’s March minutes was due to the fact that although the Asset Purchase Program has ceased, the Fed is still purchasing assets equal to the amount that is maturing off their balance sheet each month. The minutes demonstrated that the Fed is most likely going to cease those purchases unless maturities amount to more than $95 billion each month. The final decision on decreasing the $8.67 Fed balance sheet and how much will be allowed to mature and roll off each month will be made at the next Fed meeting, May 3-4. 

Ukrainian Situation 

Another week and another embarrassing defeat for the Russians. This week saw their Black Sea flagship, the missile cruiser Moskva, sunk by two Ukrainian missiles launched from shore batteries. The Moskva was already infamous as it had been the warship that demanded the surrender of the Ukrainian coastal defense members on Snake Island in February, whose defiant response was widely celebrated. Russia has attributed the sinking to an onboard fire but in any case, it appears that the ship has been “promoted to submarine.” 

For those of you wondering why the Russian Black Sea flagship was a missile cruiser and not an aircraft carrier…Russia has one carrier, the Admiral Kuznetsov, which is notoriously unreliable and is currently being retrofitted. 

Covid Update 

Infections are on the rise again and the Northeast seems to be particularly affected. Further, hospitalizations are also increasing quickly in those same areas. It remains to be seen if deaths will tick up as well and how long it will take these new variants to spread across the country. 

Covid 14-Day Daily Moving Averages 

Next Week 

Earnings season will be in full swing this coming week while economic data is light. 

Market Data Points Next Week 

• Monday – Earnings: Bank of America (BAC). 
• Tuesday – Earnings: Johnson and Johnson (JNJ) and Netflix (NFLX), International Business Machines (IBM). 
• Wednesday – Beige Book. Earnings: Proctor and Gamble (PG), Tesla (TSLA), United Airlines (UAL),  
• Thursday – Initial Jobless Claims. March Leading Economic Indicators. Earnings: AT&T (T). 
• Friday – April Flash (Initial) Markit Services and Manufacturing PMI. Earnings: American Express (AXP). 

April 15 Market Recap Trading… 

Monday – Dow (413) to 34,308, Nasdaq (299) to 13,411, S&P (75) to 4,412, USD10Y +6.7bp to 2.78% 

• All eleven S&P sectors traded down today led lower by Energy, Technology, and Health Care.  
• WTI Crude fell 4.04% to $94.29. 
• Elon Musk decided not to join Twitter’s (TWTR) Board of Directors after all. 

Tuesday – Dow (87) to 34,220 Nasdaq (40) to 13,371, S&P (15) to 4,397, USD10Y 5.5bp to 2.725% 

• Only four of the eleven S&P sectors traded higher today led by defensive sectors Energy, Utilities, and Consumer Discretionary. 
• March Core CPI was 0.1% higher than expected at 8.5% year over year but more importantly, the month-over-month figure rose only 0.3% vs 0.5% expected suggesting that inflation may finally be starting to moderate. Food, energy, and shelter were the main drivers of the print. Airline fares were up 10% but used car and truck prices were down 3.8% for the month (although they are still up 35.3% on the year). 
• WTI Crude rallied 6.69% to $100.60/bbl supposedly on relaxed Chinese Covid restrictions. 

 Wednesday – Dow +344 to 34,564, Nasdaq +272 to 13,643, S&P +49 to 4,446, USD10Y (3.8bp) to 2.687%. 

• The story of the day was earnings as Delta Air (DAL) beat earnings and revenue expectations, recorded the highest bookings in its history in March, and traded up 6%. BlackRock (BLK) beat earnings with inline revenues and traded up 1.23%. JPMorgan Chase (JPM) beat their numbers but took a $524 million charge for losses in their Russian businesses and a $902 million charge for anticipated loan losses. JPM traded down 4.24%. 
• Crude oil (WTI) traded up 3% to $103.36/bbl. 
• Nine of eleven S&P sectors traded higher today led by Consumer Discretionary, Technology, and Materials. 
• March Final PPI was hotter than expectations at +1.4% vs +1.1% and last month’s +0.9% print.

Thursday – Dow (113) to 34,451, Nasdaq (292) to 13,351, S&P (54) to 4,392, USD10Y +14.1bp to 2.828%. 

• Nine of eleven S&P sectors traded down today led lower by Technology, Communication Services, and Consumer Discretionary. Only Utilities and Energy were up on the day. 
• Jobless claims came in at 185,000 claims vs estimates of 171,000 and last week’s slightly revised higher 167,000 reports (originally reported as 166,000 claims). Continuing claims decreased to 1.48 million people. 
• Crude continued to rally on talks that the EU may in fact ban all Russian oil. WTI traded up 2.29% to $106.54/bbl. 
• March Retail Sales were lower than expected at +0.5% vs 0.6% expected and down from February’s 0.8% print. Retail sales are not adjusted for inflation and thus gas stations accounted for much of the number. 
• Twitter (TWTR) received a “take it or leave it” $54.20 all-cash offer to take the company private from none other than Elon Musk. TWTR traded down 1.68% on the news. 
• Earnings: Citibank (C) blew out numbers and traded up 1.54%, Well Fargo (WFC) beat earnings but missed on revenues as home lending fell 33% year over year. WFC traded down 4.5%. Morgan Stanley (MS) crushed their numbers and traded up 0.75%. Goldman Sachs (GS) beat earnings and revs but traded down slightly. 

 Friday – Markets closed in observance of Good Friday. 

• Empire State Manufacturing rebounded to 24.6 vs February’s -11.8 

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Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.