Deadzone Before Earnings and Buybacks
Starting out the second quarter on a down note, we are in the “deadzone” for corporate information and stock buybacks. The S&P fell -1.3% last week with technology and consumer discretionary down the most. “Boring” healthcare, staples and utilities all rose on the week. Market volatility combined with rapid sector rotation has put a premium on diversification and going slow. The S&P500 is now -6.5% from record highs set at the end of 2021. Equity market weakness reflects the war in Ukraine, increased shutdowns in China, and rising interest rates, which continued overnight with the 10-year rate up another 5 basis points to 2.76%. 10-year Treasuries rose +30 bps last week on concern that the Fed move too far to slow inflation.
It’s been non-stop hawkish Fed banter now that the CPI is poised to sport an 8-handle on Tuesday, likely near its peak given oils rapid decline the last 2 weeks. The CPI on Tuesday will be led by fuel and food costs likely sent the index 1.3% higher in March, pushing the yearly rate to a fresh 40-year high of 8.6%. Core prices could jump 0.6%, holding to the high range of the past six months, and lifting the yearly rate to 6.7%.
The market places 88% odds on a 50-bps short term rate increase on May 4 and a repeat in June as well. The FOMC minutes signaled that Quantitative Tightening is likely to begin soon after this meeting and at a hefty clip of $95 billion per month after a three-month phase-in period.
1Q22 earnings season also kicks off this week with results scheduled from the money center banks, including JPM, MS, WFC, C, USB, and PNC. UNH, DAL, FAST, and KMX also report this week.
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