Markets Consolidate Gains, Crude Rallies Further, Russia Moves the Goalposts (March 25 Market Recap)
March 25 Market Recap – Markets Consolidate Gains, Crude Rallies Further, Russia Moves the Goalposts.
Dow 34,861 or +107 or +0.30%
Nasdaq 14,169 or +276 or +1.9%
S&P 4,463 +80 or +1.8%
USD10Y 2.492% +34.4bp or +16%
Markets Consolidate Gains, Crude Remains a Concern
The markets were very headline dependent this week. While all three indices consolidated their gains, Fed Chair Powell’s surprise announcement that 50bp rate hikes were a possibility rattled the markets on Monday and the continuing surge in crude oil prices shook markets Wednesday.
Economic data was mixed this week as Initial Jobless Claims and Continuing Claims set multi decade lows and both NKE and General Mills reported very good quarters suggesting that they are still able to pass rising input costs onto the consumer. How long will that last is the question? Today, Consumer Confidence missed expectations, Durable Goods Orders fell precipitously on Thursday, and both New Home Sales (last Friday) and Existing Home Sales (today) missed expectations.
Despite comments made here last week that crude prices had settled in around the $100/bbl after spiking as high as $130/bbl, the markets did not agree that the commodity was fairly priced and WTI spiked up again to close at $112/bbl after touching $116/bbl mid-week. Pushing higher prices was the rumor that Europe was considering banning all Russian energy imports although that idea seemed to dim as the week continued. Further, despite continued whispers of an imminent deal, the 2015 JCPOA Iranian nuclear deal was not renewed which would allow Iranian crude to help meet demand. However, while supplies from the U.S. shale fields will take time to hit the market, the U.S. rig count continued to grow to 670 rigs vs 417 this time last year, a 60% uptick.
All of this is to say that next week will likely be more of the same with markets responding to news out of the Russia/Ukraine war, crude oil price movements, any further hawkish comments from the various Fed Presidents that will be speaking, and economic data with a specific focus on the PCE deflator on Thursday and to a lesser extent, Non-Farm Payrolls on Friday.
Russia’s About Face? China’s High Wire Act.
Another week of shelling and bombardment of Ukraine saw no discernible advances by Russian forces. Instead, today, Russian Defense Minister Sergei Rudskoi stated that as Ukrainian combat potential has been considerably reduced, that the Russians would now focus on the Donbass region. Analysts of the conflict see this as a reframing of Russian goals in order to allow Putin to save face, declare victory, and perhaps withdraw.
In the shadow of last week’s call between President Biden and President Jinping of China, where the former reminded the latter as to the consequences of siding with Russia as well as the former’s comments last night that “China knows their future is tied to the west,” China’s state-run Sinopec Group has suspended negotiations on a petrochemical and gas joint venture with Russia.
Minding the Twos and Tens
As mentioned last week, the yields on the 2-year and 10-year U.S. Treasury bonds had narrowed substantially. Research suggests that if 2-year rates exceed those of the 10-year, that a recession is likely to follow within 12-18 months. Last week the spread had narrowed to 20bp. This week it narrowed further to 18bp.
While there is finally encouraging news that the stubborn daily death toll is starting to subside, (down 36% over the last 14 days), infections have flattened out as opposed to slowing more rapidly as witnessed over the last several months. In fact, in the Northeast and the South, infections have increased substantially in percentage terms as the effects of BA.2 Omicron take hold.
More Fed Presidents will speak next week at various events although apart from Fed Chair Powell’s 50bp increase trial balloon that he floated earlier this week, the market largely ignored the rest of the speakers. Expect the same with this week’s slate. With jobless claims and continuing claims at historic lows, Friday’s Non-Farm payrolls number may not be as highly anticipated as it would be normally as the Fed switches its focus from full employment (largely achieved) to its other mandate of controlling inflation (work to do). Instead, look for the PCE Deflator (the Fed’s preferred tool to measure inflation) to be the headline number of the week on Thursday.
Market Data Points Next Week
- Monday – Advance Economic Indicators
- Tuesday – Fed Presidents Williams (NY), Bostic (Atlanta), and Harker (Philly) all speak. March Consumer Confidence, Feb JOLTS (Job Openings and Labor Turnover Survey).
- Wednesday – Fed Presidents Barkin (Richmond) and George (KC) speak. ADP Private Payrolls, Real Q4 GDP.
- Thursday – Fed President Williams (NY) speaks. Initial Jobless Claims, PCE Deflator, Personal Income, Chicago PMI.
- Friday – Chicago Fed President Evans speaks. March Non-Farm Payrolls, March Markit Manufacturing PMI (final), March ISM Manufacturing.
March 25 Market Recap Trading…
Monday – Dow (202) to 34,553, Nasdaq (55) to 13,838, S&P (2) to 4,461, USD10Y +16.7bp to 2.315%
- Markets were trading down mildly until Fed Chair Jerome Powell stated inflation is much too high and that the Fed could raise rates by 50bp at the next Fed meeting.
- The US10Y Treasury yield spiked 7.77% today on Powell’s comments.
- Six of eleven S&P sectors traded in the red today led lower by Consumer Discretionary, Communication Services, and Real Estate. Energy was the big winner, up 3.79%.
- Nike (NKE) beat both top and bottom-line estimates and traded up 5.87% post-close.
Tuesday – Dow +254 to 34,807 Nasdaq +270 to 14,108, S&P +50 to 4,511, USD10Y +5.8bp to 2.373%
- Markets rallied to the upside today, more than making up for yesterday’s losses.
- Ten of the eleven S&P sectors traded higher today led Consumer Discretionary, Communication Services, and Financials. Only Energy traded down today, -0.66%.
- Adobe (ADBE) reported a beat on top and bottom-lines but guided down its current quarter; the stock is off 2.56% post-close.
Wednesday – Dow (449) to 34,358, Nasdaq (186) to 13,922, S&P (55) to 4,456, USD10Y (5.2bp) to 2.321%.
- Markets continued to struggle for direction as all three indices traded down after trading up yesterday and down the day before.
- After seemingly stabilizing around the $100/bbl level last week, WTI has traded up to $116/bbl.
- Nine of eleven S&P sectors traded down today led lower by Financials, Health Care and Technology. Utilities and Energy were up 0.17% and 1.74% respectively.
- Earnings: General Mills (GIS) traded up 2.5% after beating earnings and raising their 2022 outlook. KB Home (KB) missed on revenues, earnings, and homes built, blaming supply chain and employment issues. The stock traded down 0.89% after hours.
Thursday – Dow +349 to 34,707, Nasdaq +269 to 14,191, S&P +64 to 4,520, USD10Y +2bp to 2.341%.
- All eleven S&P sectors traded up today led by Technology, Materials and Communication Services.
- Jobless claims came in at 187,000 claims, the lowest print since 1969. Estimates were for 212,000 vs last week’s slightly revised higher print of 214,000 claims. Continuing claims fell to just over 1.35 million people, the lowest amount since 1970, and the unemployment rate fell to 3.8%.
- February Durable Goods Orders fell 2.2%, more than the double the –1.0% estimate and last month’s +1.6% print. The number was heavily influenced by a decline in aircraft orders.
- WTI fell $3/bbl to close at $111/bbl on news that the United States and allies were discussing further strategic releases of crude into the markets.
Friday – Dow +153 to 34,861, Nasdaq (22) to 14,169, S&P +23 to 4,543, USD10Y +15.1bp to 2.492%.
- Nine of eleven S&P sectors traded higher today led by Energy, Utilities, and Financials.
- President Biden travelled to Eastern Europe and announced additional liquid natural gas shipments to Europe.
- February Pending Home Sales Index was down 4.1% vs expectations of +1.0%.
- March Final University of Michigan Consumer Sentiment missed at 59.4 vs 59.7.
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