Earnings End/Debt Ceiling Takes Over
Equities and the S&P 500 ended last week mixed. The DJIA (Dow Jones Index) fell -1.2% and the S&P 500 dropped -0.8% but the NASDAQ Composite rose +0.1%. So far this morning, Treasury yields are higher. Last week’s headline employment report showed continued job growth (albeit overstated due to continued meaningful revisions down), lower joblessness, faster wage gains. Even with the stronger data, the U.S. dollar fell -0.6% last week.
The S&P500 index closed -0.8% lower at 4,136, down from the prior week’s close of 4,169.5 with nine of the 11 sectors negative for the week. Slower economic data from China and fears that a US recession was near hurt the commodity sector the most. Oil prices were down as much as -15% last week, dragging 2022’s best sector, energy, -5.8% lower on the week. Marathon Petroleum (MPC) slid to a 29-week low after the company said Q1 revenue fell almost 10% year-over-year.
JPMorgan (JPM) acquired First Republic Bank (FRC) last week, but PacWest Bancorporation (PACW) lost as much as -50% Thursday on reports the bank was exploring strategic options. The regional bank index rebounded on Friday, but the sector fell by -2.6% on the week.
Consumer discretionary, consumer staples and material stocks also fell last week. Consumer discretionary sector losses were mitigated by strength in cruise operators Carnival (CCL) and Norwegian Cruise Line (NCLH) as shares were buoyed by upbeat Q1 results from Royal Caribbean (RCL).
Facing headwinds from a slower recovery in Asia and elevated inventories in Duty Free stores, Estee Lauder (EL) cut its fiscal 2023 guidance and suffered its worst daily loss on record (-15%), saddling the consumer staple sector with a 0.43% loss.
Technology stocks rallied with the help from Apple (AAPL) which crushed Wall Street’s I-phone shipments and earnings expectations. The sector was up 0.6% with chipmakers leading the rally.
US Debt Ceiling
The clock on US debt ceiling negotiations is ticking. Treasury Secretary Yellen told Congress last week that cash balances are estimated to be depleted by as early as June. The Senate, House, and President Biden have only 7 days of calendar overlap for discussion before that time. We believe a resolution will be reached, though political brinkmanship raises the likelihood of a last-minute outcome potentially requiring a short-term increase to buy more time. This deadline is causing wild gyrations in uber short term Treasury bill markets as money market mutual funds are loathe to be in position to “break the buck”.
The Federal Reserve met and signaled that it would pause its rate hiking cycle in June. Credit tightening from the regional bank collapses is helping to stop the monetary tightening cycle sooner than most economists expected. The Fed did retain a hawkish stance to hold rates steady for the rest of the year.
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Oak Harvest Weekly Stalk Talk: Stock Market Volatility Lower? Inconceivable
Interesting Reads:
https://www.washingtonpost.com/business/2023/05/07/new-car-market-high-interest-rates/
