The Week On Wall Street
Concerns over a firmer monetary policy were heightened by fresh economic data, touching off a climb in bond yields and a slide in stock prices last week. The Dow Jones Industrial Average skidded 2.99%, while the Standard & Poor’s 500 dipped 2.67%. The Nasdaq Composite index sagged 3.33% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, retreated 1.23%.
Stocks struggled last week, buffeted by growing fears of further Fed tightening and disappointing forecasts from two major retailers that called into question the consumer's health. The release of the minutes from the Federal Open Market Committee’s (FOMC) last meeting did little to assuage investor worries. Reflecting these concerns of a more aggressive Fed was that by Thursday, traders were pricing in a 27% chance that the Fed might lift rates by a half-percentage point at its next meeting, far above the 1.3% chance just one month ago. Stocks took another leg lower on Friday following the release of January’s Personal Consumption Expenditures (PCE) price index, which showed hotter-than-expected price increases and more robust consumer spending.
Minutes from the last FOMC meeting indicated that nearly all members agreed with February’s quarter-point rate increase, though some would have supported a 50 basis point rate hike to move quicker towards the Fed’s target range. While the minutes suggested another 25 basis point hike is likely at their next meeting, investors remain anxious that more recent economic data may prompt a 0.50% hike instead. The minutes stressed that inflation was still too high. However, members diverged on the economy, with some members finding the risk of recession elevated. In contrast, others feel the Fed may engineer a soft landing or avoid a recession altogether. At the end of the day, the Fed is now data dependent and stocks are now data reactive. Inflation is coming down. We didn't wake up one morning with high inflation and it won't disappear overnight either. Healing takes time, whether it's in our person or the economy. And, it is never fast enough for our liking.
This Week: Key Economic Data
Monday: Durable Goods Orders.
Tuesday: Consumer Confidence.
Wednesday: Institute for Supply Management (ISM) Manufacturing Index.
Thursday: Jobless Claims.
Friday: Institute for Supply Management (ISM) Services Index.
This Week: Notable Companies Reporting Earnings
Monday: Workday, Inc. (WDAY).
Tuesday: Occidental Petroleum Corporation (OXY), Target Corporation (TGT), AutoZone, Inc. (AZO), Ross Stores, Inc. (ROST), Agilent Technologies, Inc. (A).
Wednesday: Salesforce, Inc. (CRM), Lowe’s Companies, Inc. (LOW), Dollar Tree, Inc. (DLTR).
Thursday: Broadcom, Inc. (AVGO), Costco Wholesale Corporation (COST), Best Buy Co., Inc. (BBY), Marvell Technology, Inc. (MRVL), Dell Technologies, Inc. (DELL).
As mentioned above stocks gave back a little over the past couple of weeks. I mentioned this a few weeks ago as a likely scenario since we saw such a strong jump in the month of January. When stocks run up a little too much and then you get some mildly disappointing news it makes for a larger than necessary pullback in the markets. I say mildly disappointing news because the trend in inflation is still down and as we have learned trends involve some back and forth and don’t generally involve a straight line. The next inflation numbers are released March 14 and will inevitably move markets. We still expect the trend is moving down.
As for corporate earnings this past quarter, of the 468 companies that have reported so far (94% of the S&P 500), overall earnings results are beating estimates by a median of 6%, and 69% of those reporting are beating estimates. On the top line, overall results are beating estimates by a median of 6%, and 66% of those reporting are beating estimates. Believe it or not, this is slightly below the 5-year average. We have also seen a few more companies issuing negative earnings guidance for the first quarter of the year. However, most analysts believe erosion in earnings the first half of the year will be recaptured by higher earnings in the second half of the year as businesses have time to adjust to higher borrowing costs.