Friday, July 29, 2022

US Market Wrap 07/29/2022

- The stock market is coming to a close after a tumultuous week, with solid earnings from tech megacaps providing solace to traders concerned about the many crosscurrents rattling economies around the world.

- Following a disastrous first half, the S&P 500 had its best month since November 2020, while the Nasdaq 100 had its best month since April of that year. On Friday, big tech led gains, with Amazon and Apple soaring as higher revenues from the pair of iconic powerhouses offset concerns about profit slowdowns at a time when the industry is rethinking its staffing needs.

- Despite worrying signals from economic proxies such as Walmart and United Parcel Service, the earnings season as a whole has turned out to be brighter than expected, with roughly 75% of S&P 500 firms reporting results beating analyst estimates. This is fueling speculation that corporate America will be able to weather the perfect storm of high inflation, large rate hikes, and slowing growth.

- Two key US price gauges rose faster than expected, with the personal consumption expenditures index, which serves as the basis for the Federal Reserve's inflation target, rising at the fastest rate since 2005. Long-term inflation expectations among consumers remained high as well. Swaps revealed that traders increased their bets on a 75-basis-point hike in September, despite continuing to believe that a 50-basis-point hike was the most likely outcome.

- Fed Bank of Atlanta President Raphael Bostic stated that the US economy is "a ways" from entering a recession and that officials must raise rates further to keep prices under control.

- Despite this month's strong rebound in stocks, several market observers are sceptical of a sustained rally due to the numerous economic challenges and the fact that the market hasn't gotten cheap enough to call it a bottom.

Thursday, July 28, 2022

US Market Wrap 07/28/2022

 - The stock rally gained traction, defying sceptics in the aftermath of the Fed decision, with traders reducing bets on rate hikes as the drumbeat of recession grew louder amid poor economic data.

- Equities reached a seven-week high, led by defensive groups, which are frequently sought after during difficult times. Prior to the results of Apple and Amazon,  technology underperformed. Bond yields fell, and swaps referencing policy meeting dates showed bets that the fed funds rate will peak around 3.25% before the end of 2022, less than 100 basis points higher than it is now.

- Investors remained bullish on the Fed slowing its rate of tightening as data indicated the economy was losing steam heading into the second half of the year. That came a day after Jerome Powell said hikes would slow at some point, sparking a strong market reaction that was slammed by Fed watchers who said traders got it all wrong because tighter financial conditions are needed to combat inflation.

Wednesday, July 27, 2022

US Market Wrap 07/27/2022

- Stocks rose and bond yields fell after Federal Reserve Chairman Jerome Powell stated that the Fed will slow the pace of rate increases at some point, but that officials will refrain from providing "clear guidance" on the size of their next move.

- About 85% of the S&P 500 companies rose, while the Nasdaq 100 rose more than 4%, boosted by solid earnings from tech titans. Two-year US yields, which are more sensitive to upcoming Fed moves, fell as much as ten basis points. Expectations for the Fed's rate of hikes have slowed, with swap markets pricing in around 58 basis points of tightening for September. The dollar dropped.

- The Fed's chairman denied that the US economy is in recession and stated that the central bank is acting "expeditiously" in dealing with price pressures. Powell also stated that another unusually large increase in rates would be dependent on data after officials raised rates by 75 basis points on Wednesday, bringing the total increase from June to July to 150 basis points, the steepest since the early 1980s. 

Tuesday, July 26, 2022

US Market Wrap 07/26/2022

- Stocks fell as bad economic data and a weaker outlook from the world's largest retailer highlighted the effects of rising pressures on consumer spending, with recession fears rife as the Federal Reserve prepares to deliver another jumbo-sized boost.

- Walmart's rout engulfed industry peers, with Morgan Stanley stating that its prediction is a "possible danger signal" for Amazon's retail margins. In late trading, a $166 billion exchange-traded fund tracking the NASDAQ 100 soared as Google's parent company, Alphabet surged after earnings. Microsoft slumped after reporting its worst sales growth since 2020.

- Traders were also bracing for another 75-basis-point boost by fed officials on Wednesday, with a combined increase of 150 basis points in June and July being the highest rate rise since the early 1980s, when then-chairman Volcker was battling sky-high inflation. Consumer confidence in the United States has dropped to its lowest level since February 2021, while a measure of new home sales has dropped for the fifth time this year.

- According to Goldman Sachs strategists, US policymakers are expected to remain hawkish for longer due to persistently rising inflation, the latest to enter the debate over a potential central bank pivot as the economy slows. They agreed with Morgan Stanley's Michael Wilson, who said on Monday that it's too early to anticipate the Fed to stop raising.

- Meanwhile, strategists at JPMorgan believe that bets that prices have peaked will result in a Fed turnaround and strengthen the picture for equities in the second half.

Monday, July 25, 2022

US Market Wrap 07/25/2022

- Traders braced for earnings from several technology bellwethers as a hawkish Federal Reserve, scorching inflation, and a looming economic recession loomed.

- Following last week's rally in the S&P 500, trader anxiety was evident, with the index closing slightly higher after oscillating between gains and losses throughout the session. Following a two-day drop of nearly 30 basis points, ten-year US yields climbed back above 2.8%, following a cohort of tech shares weighing on the market ahead of results from the likes of Apple and Google's parent Alphabet.

- After raising rates by the most since 1994, Fed officials are expected to approve another 75-basis-point increase on Wednesday, signalling their intent to continue raising rates. The economy is already feeling the effects of repeated rate hikes, with the housing market cooling, unemployment claims rising, and tech firms cutting back on hiring.

- Growth in the tech world has sputtered, with investors expecting mostly bad news from megacaps. The revenue of Amazon is growing at the slowest rate in decades. Chipmakers are lurching from a period of expansion to a period of potential glut. Companies in the gig economy, such as Uber Technologies and Doordash, may suffer as a result of consumer budget cuts, and the decline in online advertising is expected to have an impact on the results of Facebook owner Meta Platforms.

Friday, July 22, 2022

US Market Wrap 07/22/2022

- Stocks in the United States fell as disappointing earnings from social media companies and weak economic data fueled recession fears. Treasuries rose as traders reduced their bets on Fed rate hikes, while the dollar fell.

- The S&P 500 fell for the first time in four days, while the tech-heavy Nasdaq 100 trailed major benchmarks, falling 1.8%. Shares of Facebook parent Meta Platforms and Google owner Alphabet fell after Snap's poor results and Twitter's miss raised concerns about online ad spending. Hardware and storage companies including Micron Technology and Western Digital fell after Seagate Technology's earnings miss and weak outlook.

- Despite Friday's churn, the equity market had its best week in a month, reducing the year's market rout to about 17%. Part of the reason for the move is speculation that the worst of the selloff has passed. However, despite a reduction in expectations for Fed aggressiveness next week, concerns about the impact of inflation, rapidly rising interest rates, and recession fears remain.

- In the face of mounting economic concerns, Snap's results have become a barometer for ad spending. There are growing signs that tech firms are bracing for a downturn, with some cutting back on hiring, while Meta has lost roughly half of its value this year due to disappointing revenue forecasts. Next week, Meta and Alphabet are expected to report earnings.

- Treasury yields rose further, highlighting recession fears, pushing the 10-year yield to around 2.7%. According to the S&P Global Flash Composite Purchasing Managers Output Index, US business activity contracted in July for the first time in more than two years.

- As a result, swaps traders reduced their bets on Fed hikes, pricing a 50-basis-point increase in September as more likely than a three-quarter-point move. Swaps for the meeting next week briefly indicated that a 75 basis-point increase was less than certain.

- Meanwhile, German short-term bonds rose as investors reduced their bets on European Central Bank rate hikes following the region's weaker-than-expected PMI data, which fueled fears of a recession.

Thursday, July 21, 2022

US Market Wrap 07/21/2022

 - Stocks rose amid a rally in megacaps as corporate sector strength boosted investor sentiment. Treasuries rose as data indicated that the US economy was weakening.

- The S&P 500 was on track for its best three-day gain since May 27th, led by technology and consumer discretionary stocks. Tesla topped the leaderboard after its quarterly results exceeded expectations, with Apple and Amazon also rising ahead of earnings due next week. Stocks briefly fell in morning trading after news that US President Joe Biden had tested positive for COVID.

- Treasury yields fell, with the 10-year yield falling back below 3% following a knee-jerk move higher following the European Central Bank's larger-than-expected rate hike. The increase in jobless claims indicated a softening in the labour market, while the outlook for business conditions among Philadelphia-area manufacturers and the Conference Board's leading economic index fell more than expected.

- Markets were roiled in early trading after the European Central Bank raised interest rates by 50 basis points, the first increase in 11 years and the largest since 2000. It comes as a brewing political crisis in Italy increases pressure on the ECB to protect the eurozone's most vulnerable members from market speculation via a new crisis management tool. The euro initially rose in response to the decision before losing ground against the dollar.

- Stocks have risen more than 8% since a multi-year low in mid-June, on the back of earnings optimism and speculation that the Federal Reserve will take a more measured approach to tightening policy. It is unclear whether the market has bottomed, but yields have fallen in the last month, and rates markets have abandoned bets on a full percentage point hike when the Fed meets next week.

- Nonetheless, sentiment remains fragile in the face of accelerating inflation and the prospect of a sharp decline in global economies, as well as geopolitical risks, particularly in Europe. The resumption of Russian gas exports to the region via the Nord Stream could provide some relief to the continent, which is racing to stockpile fuel before winter.