Major U.S. stock market indexes traded in narrow ranges for the third consecutive week, with sector rotation on display. A big week full of corporate earnings is now on deck.
Tallying last week, the S&P 500 was nearly flat, decreasing by 0.10%, the Nasdaq 100 was lower by 0.60%, and the Dow Jones Industrial Average was little changed, decreasing by 0.23%.
Quiet Markets…For Now
Major market averages have been unable to get momentum going in one direction or the other recently–the last three weeks have been very quiet.
The Volatility Index (VIX:CBOE) reached levels not seen since late 2021, trading into the low 16s and settling at 16.77 last week.
The VIX at these lower levels indicates potential complacency in the S&P 500, and the result has been quiet trading sessions and narrow trading ranges. Such a low level in the VIX can also potentially indicate that markets expect higher prices for the S&P 500 over the next 30 days.
It seems the market is waiting for some catalyst to move decisively in one direction or the other. Perhaps we will get some more movement this week on earnings.
Earnings Season Underway
Once again, earnings season is upon us and gets into full swing this week. We will hear from Mcdonalds, Coca-Cola, General Electric, First Republic Bank, Boeing, Exxon Mobil, Chevron, and many more companies this week.
We mentioned it during a previous earnings season–Netflix is cracking down on password sharing! They now expect the password-sharing crackdown to get into gear by the end of June. Netflix posted mixed quarterly results last week.
Tesla shares fell on earnings results last week, with lower gross margins and price cuts continuing to be the theme. However, pricing for Model S and Model X vehicles has been raised after six consecutive price cuts.
Earnings season heats up this week, and many market participants expect trading ranges to expand.
Home Prices, Sales Slide
Nationwide, existing home sales and building permits slid in March, with median existing-home sales pricing retreating by 0.9% from the previous year to $375,700.
Depending on where you live, you may say, “What? Prices are still sky-high.” There are pockets of strength, such as Massachusetts, where prices continue to break records in some areas.
Many sellers are reluctant to sell, partly because of mortgage rates in the 6s, while they may have existing mortgages in the high 2s or 3s. The sellers’ reluctance is keeping inventories scarce across many markets. Very few people want to go from a 3% mortgage to a 6% plus rate if they can help it.
While corporate growth really does come down to earnings and multiples, until interest rates and inflation are further tamed, the Fed remains in the spotlight.
The May Fed meeting is right around the corner on May 3rd. Markets indicate a strong consensus for a 25 basis point hike–an 89.1% probability as of April 21st, according to Fed Fund futures via the CME FedWatch Tool.
Currently, markets favor the May quarter-point hike to result at the end of the Fed rate hike campaign, which would be a Fed terminal rate of 5.00% – 5.25%.
Presently, markets favor the Fed sitting tight at future meetings and possibly cutting rates later this year. It is too early to tell, but that is the current consensus according to the CME FedWatch tool.
Economic Data Incoming
A deluge of earnings results and conference calls are on the calendar for this week, but it doesn’t end there!
Consumer Confidence, Advance GDP, Unemployment Claims, and the Core PCE Price Index are all on the calendar. We know the Fed will be paying attention to their favorite inflation indicator in Core PCE ahead of their May 3rd meeting.
Markets expect a 0.3% month-over-month rise in Core PCE, equivalent to last month’s results. In an economic data-hungry mood? Check out this write-up on the “Trend Inflation.”
There has been low volatility and overall quiet U.S. equity markets for the last few weeks. Market narratives are dynamic, and many would like to see an earnings-driven stock market as opposed to a Fed-driven one. That could be in the cards soon, and we will look for clues of such a shift throughout the remainder of the earnings season.
The May 3rd Fed meeting has market expectations of producing a 25 basis point hike, according to the CME FedWatch Tool. Market watchers will pay attention to the statement and subsequent press conference for clues regarding the Fed’s stance on their terminal rate and dot plot.
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