The Week On Wall Street
Stocks were mixed last week as good inflation news was offset by mounting debt ceiling concerns and rekindled regional banking fears. The Dow Jones Industrial Average lost 1.11%, while the Standard & Poor’s 500 slipped 0.29%. The Nasdaq Composite index rose 0.40% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, fell 0.67%.
Uncertainty Weighs on Stocks
The week got off to a quiet start as investors waited on April’s two key inflation reports scheduled for release on Wednesday and Thursday. When consumer prices rose less than forecasted, stocks broke out of their lethargy and moved higher. Stocks also got a boost on Wednesday afternoon from comments from the White House, hinting at an opening for negotiation on the debt ceiling. Despite a substantial cooling in producer price increases, stocks turned mixed on Thursday amid a disappointing earnings report from a Dow Industrial component and new data that reignited investor anxiety over regional banks’ financial health. Stocks ended the week the way they began, largely drifting in an otherwise directionless fashion.
Inflation Pressures Ease
Consumer prices rose 4.9% year-over-year, the tenth consecutive month that the headline inflation rate has declined. This was a slight improvement over March’s 12-month increase of 5.0%. April’s monthly inflation rate was 0.4 percent, above March’s 0.1 percent rise. April’s increase was driven by higher housing, gasoline, and used car costs. Inflation progress extended into wholesale prices, which rose 0.2% in April–below the consensus forecast of a 0.3% rise. For the last twelve months, producer prices increased 2.3%, an improvement from last month’s 2.7% year-over-year gain and the lowest recording since January 2021.
This Week: Key Economic Data
Tuesday: Retail Sales. Industrial Production.
Wednesday: Housing Starts.
Thursday: Existing Home Sales. Index of Leading Economic Indicators. Jobless Claims.
This Week: Notable Companies Reporting Earnings
Tuesday: The Home Depot, Inc. (HD).
Wednesday: Cisco Systems, Inc. (CSCO), Target Corporation (TGT), The TJX Companies, Inc. (TJX).
Thursday: Walmart, Inc. (WMT), Applied Materials, Inc. (AMAT), Ross Stores, Inc. (ROST).
Friday: Deere & Company (DE)
Final Thoughts
Market sentiment remains negative. One thing I’ve learned over the past 25 years is the market like to prove as many people wrong as possible. So, if the herd thinks it is going to go up, it goes down and vice versa. Sure, there are lots of negative news items on the horizon, but honestly when hasn’t there been a lot of negative news on the horizon. The difference now versus 20 years ago isn’t the lack of negative news, it's the ability to bathe in it all day long thanks to cell phones and the internet. Regardless, human nature hasn’t changed. If people are employed and have money, they tend to spend it. The economy is slowing, but it hasn’t reached stall speed yet. When it does, the Fed will have to cut rates. I’ve said many times over the past year in this update the Fed would raise rates until they broke something. Mission accomplished. It doesn’t matter what the Fed says, it matters what it does, and they are not going to hike rates again. The market is pricing in rate cuts early next year. Low rates are jet fuel for stocks, so you’ll want to be around for that party whenever it happens. The problem is, one never knows when the party will start, and you must be present to participate. So, the moral of the story here is tune out the media and ignore all the debt ceiling hype.
There will be an agreement or everyone in Washington will be packing their bags next November. Think about the challenges of the past 10 years and where the market has gone during that time. Sentiment, as I’ve also stated many times, is a good measure of where we may be headed. Times of high negative sentiment have historically been the best times to put money to work. I could put in charts and graphs below, but I will just tell you sentiment was very low in March of 2009 and in March of 2020. Think about where stocks went from there. Conversely, sentiment was at all-time highs in early 2000, late 2007 and late 2021. Where’d the market go from there?
Janet Yellen says the U.S. is out of money by June 1st. My guess is Congress wants to enjoy Memorial Day with their families, so a deal should be imminent. Or, they prove their worthlessness and let the U.S. default on its obligations. I would bet on the former and not the latter. Stay tuned… 
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May 15, 2023
