Market Bottom or Bear Trap? (May 13 Market Recap)
May 13 Market Recap – Market Bottom or Bear Trap?
- Dow 32,196 (703) or (2.1%)
- Nasdaq 11,805 (339) or (2.8%)
- S&P 4,023 (108) or (2.6%)
- USD10Y 2.935% (18.8bp) or (6.0%)
Friday Rally Spares the Markets a Truly Awful Week
The S&P traded down to begin Friday’s session, stopped just shy of bear market territory (defined as down 20% from its high) and rallied to nearly cut the week’s losses in half. Does this mark a market bottom or is it just another bear rally such that we saw last week? History is not much of a guide. Since 1957, when the S&P has fallen 19%, only five of those instances have marked market bottoms. And unfortunately, most of those examples were accompanied by the Federal Reserve initiating an interest rate cut cycle. Currently, the Fed is raising rates and comments by Fed Chair Jerome Powell this week did not indicate that a change of direction was imminent. Powell commented that he foresaw a 50 bp point hike after both the June and July Fed meetings but then also dropped a line that caught the markets attention: “If the economy performs about as expected,” Powell said, “it would be appropriate for there to be additional 50-basis point increases at the next two meetings.” Some market observers took this to mean that if the economy begins to falter, the Fed would at the very least delay additional rate hikes. It was upon this sentence that Friday’s rally was built.
The big number (and disappointment) this week was the April Core CPI (Consumer Price Index ex food and energy). The year-over-year (YoY) print was +6.0%, which was down from last month but did not show the decline expected (or hoped for). Even worse, the month over month (MoM) number was +0.6% which was greater than expected and larger than last month’s print (+0.3%). These numbers give the Fed little wriggle room to pause or decrease the speed at which they will raise rates and undoubtedly precipitated Fed Chair Powell’s comments Thursday which attempted to reassure the markets that a 75 bp hike is still not being considered at this time.
Initial jobless claims are hovering around 200,000 per week and continuing claims continue to set multi decade lows. The Producer Price Index gave some hope that prices might have or might be beginning to crest as it came in as expected at +0.5%, a large drop off from March’s +1.6% print.
Lastly, despite quite a bit of volatility, WTI Crude finished the week relatively unchanged from last Friday’s close. WTI closed at $110.16/bbl.
For the third consecutive week, infections grew by more than 52%. Hospitalizations are up 20% or more for the second consecutive week and the death toll is starting to tick higher. This week marked a grim milestone in the pandemic; Covid has now claimed over one million American lives.
A bevy of Fed presidents, including Fed Chair Jerome Powell will be speaking throughout the week. Earnings season will wrap up with several major retailers reporting. On the economic data front, April Housing starts, May Philly Fed, and April Existing Home Sales will all be released.
Market Data Points Next Week
- Monday – May Empire State Manufacturing
- Tuesday – April Retail Sales. Fed Chair Jerome Powell speaks at a Wall Street Journal conference. Earnings: Walmart (WMT), Home Depot (HD).
- Wednesday – April Housing Starts, May Philadelphia Fed Manufacturing Index. Earnings: Target (TGT), Lowe’s (LOW), TJX Companies (TJX).
- Thursday – Initial Jobless Claims. April Existing Home Sales.
- Friday – N/A
May 13 Market Recap Trading…
Monday – Dow (653) to 32,245, Nasdaq (521) to 11,623, S&P (132) to 3,991, USD10Y (4.4bp) to 3.079%
- Ten of the eleven S&P sectors traded down today led lower by Energy, Real Estate, and Communication Discretionary.
- WTI Crude traded down 6.76% to settle at $102.35 on further lockdown worries in China.
- AMC Entertainment Holdings (AMC) traded up 4% post-close after reporting its strongest quarter in two years and beat revenue expectations by 5.6%.
Tuesday – Dow (85) to 32,160, Nasdaq +114 to 11,737, S&P +9 to 4,001, USD10Y (8.6bp) to 2.993%
- Only three of the eleven S&P sectors traded higher today, led by Energy, Utilities and Materials. The three worst performers were Consumer Discretionary, Technology, and Communication Services.
- WTI Crude continued its slide, settling at $99.76/bbl.
Wednesday – Dow (326) to 31,834, Nasdaq (373) to 11,364, S&P (66) to 3,935, USD10Y (7.2bp) to 2.921%.
- All eleven S&P sectors traded higher today led by Energy, Communication Services, and Technology.
- April Core CPI was +6.0% year over year (YoY) and +0.6% month over month (MoM). Both numbers were higher than expectations and while the YoY number declined from last month, the MoM number was higher than last month’s (+0.3%).
- WTI Crude rallied above $100 to settle at $104.87/bbl.
Thursday – Dow (103) to 31,730, Nasdaq +6 to 11,370, S&P (5) to 3,930, USD10Y (10.4bp) to 2.817%
- Six of eleven S&P sectors traded higher today led Health, Consumer Discretionary, and Real Estate.
- Jobless claims were higher than expected at 203,000 claims vs 195,000 expected and last week’s slightly revised higher 202,000 print (originally reported as 200,000 claims). Continuing claims continued to decrease from 1.38 million to 1.34 million.
- June WTI Crude traded up 0.46% to $106.62/bbl.
- April Producer Price Index (PPI) was in line at +0.5%, a sharp decline from March’s +1.6% print.
Friday – Dow +466 to 32,196, Nasdaq +434 to 11,805, S&P +94 to 4,023, USD10Y +11.8bp to 2.935%
- All eleven S&P sectors rallied sharply today led by Consumer Discretionary, Technology, and Energy.
- June WTI Crude continued its rally to close at $110.16/bbl.
- Twitter (TWTR) fell 9.7% on Elon Musk’s announcement that his acquisition of the company was on hold. He subsequently tweeted that he was still committed to the acquisition.
- Brokerage firm Robinhood (HOOD) traded up 24.9% after crypto exchange company FTX’s CEO, Sam Bankman-Fried revealed a 7.6% stake in the company.
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