Anticipation…Results…Reaction – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

Stocks were softer Monday and Tuesday, with the Dow Jones Industrial Average sliding 300 points at Tuesday’s close. The tech-heavy Nasdaq Composite and the S&P 500 sank 1.98% and 1,58% respectively, notable drops, as the market was aimless. The week is shaping up as many high-tech, and tech conglomerates are scheduled to release earnings in the next ten days, with the market awaiting reasons to be positive for buyers. Bonds started falling, with the 10-year edging lower to 3.38%. Oil was weaker, as it skid about 2% to $77.11, disappointing speculators. After OPEC made production announcements nearly a month ago, estimates of ‘expensive oil’ was the talk of Wall Street. The opposite has occured. Another indicator, the Conference Board reported Tuesday that the consumers index dropped to 101.3 in April from 104 in March, notable data to gauge the consumers buying habits. Home sales were up 9.6%, surprising economists, who were predicting negative numbers.

The technology-heavy Nasdaq has defied the general market slide, demonstrating resilience and endurance in these troubled inflationary times. The index is not influenced by the other index’s movements, as technology rules…usually. Both the Dow Jones Industrial Average and S&P 500 with almost every sector, except tech, have been skidding downward, as inflation fears are climaxing again as the Fed is nearing another possible rate increase. Even with 80% of the 163 reporting companies ‘coming in’ with better than analyst’s estimates, the market has failed to get ‘traction’ struggling to build momentum.

The Dow Jones was stronger from Thursday’s opening, up 524 points closing at $33,826.16, with both the S&P 500 and Nasdaq finishing at $4,135.36, $12,142.24, respectively. Investors and traders are beginning to realize that the ‘grim’ reality of concerns are manageable and will react to all the Fed’s moves.

Shoppers have ‘pared back’ spending, in every aspect from gasoline to household appliances, as data shows the negative trend is taking hold. Higher interest rates are finally ‘sinking in.’ Declining retail sales, “is the type of slowing policy makers would want to see,”said Sonia Meskin, an economist at BNY Mellon Investment Management. “The consumer has remained remarkably resilient in the face of rate rises by the Fed,” she said. Labor is beginning to taper down, with wages standing firm. The sizzling labor market has been a contrary component, to the development of a recession. Jerome Powell has long commented that the ‘confusing labor ingredient’ has amazing tenacious staying power. As retail sales continue to slide, one sector is picking up steam, the airline and hotel industry is sizzling, with backlogs at peak highs. The University of Michigan sentiment survey showed a slight positive spike in April. The U.S. consumer is tightening the belt, but loosening up for travel.

Great Britain Battles Inflation…British inflation for several months has hovered above 10%. Recent data shows a slight softening, with forecasts near 9.8%. Energy and foodstuffs continue to be the biggest culprits, increasing 19% in the past 12 months. Strikes by two sectors, health and education, have severely affected the country, disrupting families, business and the general economy. Another looming strike, that of the teachers union, is one that will affect families and child care. Both the Bank of England and the International Monetary Fund have cautioned that a forthcoming recession is almost a certainty.

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Janet Yellen, Treasury Secretary, USA, Barron’s “China’s economic growth need not be incompatible with the U.S. economic leadership. We do not seek to decouple our economy from China.”

Claudia Sahm, Independent Macroeconomic Consultant, Barron’s “Powell has been clear that the economy has started into a disinflationary cycle. Going too fast (on interest rate hikes) risks the strong recovery in the labor market. That isn’t a risk the Fed should be taking.”

Dan Chung, CEO and chief investment officer at New York-based Alger. Barron’s “We’re approaching the end of the Fed rate-hike cycle….This is the beginning of a new bull market and the reassertion of growth stocks leading the market again.” Chung adds “It seems to me that the S&P 500 saw its bottom in October, and I don’t think we’ll see a major retest.”

Lisa Erickson, head of the public markets group at U.S. Bank Wealth Management, WSJ “Given what’s happened with the financial-sector stress, what we see is that there is greater lack of clarity now given the potential for tightening lending conditions, and that continues to raise some questions on the outlook going forward,” said Ms. Erickson. “That leads to concern that the interest-rate environment may stay tougher,” she added, referring to the manufacturing and services data.