Market edges higher
- Stocks grind higher as inflation eases and economy slows
- Small caps lead, tech lags, bond yields jump
- This week: Earnings season ramps up, housing numbers, Fed Beige Book
Last week investors pushed US stocks to their highest levels in over two months amid more signs of cooling inflation—and a slowing economy.
The S&P 500 (SPX) took a crooked path as it pushed to its highest level since early February and notched its fourth up week of the past five. Stocks swung up and down as traders navigated the week’s key data—Wednesday’s Consumer Price Index (CPI), Thursday’s Producer Price Index (PPI), and Friday’s retail sales report:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.) Note: It is not possible to directly invest in an index.
The headline: Inflation eases, investors weigh economic signals.
The fine print: The CPI and the PPI (especially the latter) showed inflation eased in March—welcome news for investors looking for an end to Fed rate hikes. But Friday’s weaker-than-expected retail sales number highlighted the inevitable consequence of fighting inflation: a slowing economy.
The number: 239,000, last Thursday’s larger-than-expected number of weekly jobless claims. A sign the tight labor market is loosening up? Perhaps, but the Fed may need to see the trend play out in the monthly employment numbers before they feel “jobs inflation” is under control.
The scorecard: The Russell 2000 (RUT) small cap index led the market and pushed back into positive territory for the year:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Sector returns: The strongest S&P 500 sectors last week were financials (+2.9%), energy (+2.5%), and industrials (+2.1%). The weakest sectors were real estate (-1.4%), utilities (-1.3%), and information technology (-0.4%).
Stock movers: Kala Pharmaceuticals (KALA) +23% to $17.04 on Tuesday, Triton (TRTN) +32% to $83.34 on Wednesday. Cutera (CUTR) -28% to $19.44 on Wednesday, Catalent (CTLT) -27% to $46.32 on Friday,
Futures: After a sharp sell-off last Monday, June gold (GCM3) rebounded to hit its highest high since March 2022 on Thursday ($2,063.40), but sold off sharply on Friday to end the week down roughly $11 at $2,015.80. June WTI crude oil (CLM3) rallied to a five-month high of $83.38 last Wednesday before closing Friday at $82.43, up a little less than $2 for the week. Week’s biggest up moves: April Micro ether (METHJ3) +13.6%, April Micro bitcoin (MBTJ3) +9%. Week’s biggest down moves: May VIX (VXK3) -6.6%, June Ultra T-bond (UBM3) -2.2%.
Coming this week
The first full week of earnings season has a little of everything, but the financial sector is still heavily represented:
●Monday: J.B. Hunt Transportation (JBHT), M&T Bank (MTB)
●Tuesday: Bank of America (BAC), Bank of New York Mellon (BK), Goldman Sachs (GS), Johnson & Johnson (JNJ), Lockheed Martin (LMT), Prologis (PLD), Netflix (NFLX), United Airlines (UAL)
●Wednesday: Abbott Labs (ABT), ASML (ASML), Morgan Stanley (MS), Synchrony Financial (SYF), US Bancorp (USB), Alcoa (AA), Crown Castle (CCI), Carvana (CVNA), F5 (FFIV), International Business Machines (IBM), Kinder Morgan (KMI), Lam Research (LRCX), Tesla (TSLA), Wintrust (WTFC)
●Thursday: AutoNation (AN), American Express (AXP), D.R. Horton (DHI), KeyCorp (KEY), Philip Morris (PM), Rite Aid (RAD), AT&T (T), Taiwan Semiconductor (TSM), Union Pacific (UNP), CSX (CSX), Snap (SNAP)
●Friday: Freeport-McMoRan (FCX), HCA Healthcare (HCA), Newmont (NEM), Procter and Gamble (PG), Schlumberger (SLB)
This week’s numbers include:
●Monday: Empire State Manufacturing Index, NAHB Housing Market Index
●Tuesday: Housing Starts and Building Permits
●Wednesday: Fed Beige Book
●Thursday: Philadelphia Fed Manufacturing Survey, Existing Home Sales, Leading Economic Indicators Index
●Friday: S&P Global Manufacturing and Services PMIs (flash)
Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.
VIX stealth move
The Cboe Volatility (VIX) tends to get the most attention when it’s spiking higher during stock market sell-offs, but it did something fairly notable last week as the market was climbing. On Thursday it closed lower (17.80) than it has on any day since January 2022, and on Friday it fell to a lower intraday low and close.
That’s something the VIX has done only 46 other times since 1990.1 The last time was on July 2, 2021, when the SPX was near the highs of a multi-month trading range and subsequently fell more than 7% over the next couple of weeks.
Overall, though, the market’s performance following similar VIX patterns suggests a short-term weakening of upward momentum was more common than a full-blown sell-off (in addition to a healthy number of times the market continued to rally). For example, after three days the SPX was higher 22 times and lower the other 24 (48%), with a nearly flat median return of -0.07%. After two weeks, the SPX was higher in 21 of 46 cases (46% of the time) with a median return of -0.04%—numbers that are well below the SPX’s 0.52% median return and 60% positivity for all two-week periods since 1990.
1 Reflects S&P 500 (SPX) and Cboe Volatility Index (VIX) daily price data, January 1990–April 2022. Performance statistics reflect the following pattern: a day the VIX closes at its lowest level of the past year, followed by a day it makes a lower low and a lower close. Supporting document available upon request.