Presented by The PensionmarkMeridien Team, April 22, 2024
With events in the Middle East and the direction of future monetary policy weighing on markets last week, it is the perfect time to reach out and keep you informed.
U.S. stock market indexes were already digesting warmer inflation data as last week began, and rate cut probabilities thinned further as the Israeli retaliatory strike took place.
Overall, the S&P 500 declined by 3.05%1, the NASDAQ 100 fell by 5.36%2, and the Dow Jones Industrial Average was a smidge higher — essentially unchanged — ending the week higher by 0.01%3. The Dow Jones’ performance can be attributed to earnings-based strength and value stock performance in the 30-stock index.
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U.S. STOCKS/MAJOR EARNINGS
Stocks traded lower overall in a mostly orderly fashion last week, with war tensions adding to inflationary pressures and shifting Fed interest policy expectations.
Earnings strength from American Express helped to cushion the blow last week, even as Travelers’ results earlier in the week were less than desirable.
The mood last week was as follows: If earnings were good, stocks barely moved up. But if an entity showed weak numbers or guidance — boy, did the market punish certain individual stocks. This type of earnings volatility could create opportunities in this fresh week.
GROWTH PULLBACK
Have you ever wondered what market watchers mean when they say “growth stocks” or “value stocks?” Here’s a good overview for you4.
Last week, value5 stocks (iShares S&P 500 Value ETF) outperformed growth6 (iShares S&P 500 Growth ETF) by a substantial margin. This indicates a more risk-averse investor in light of the macroeconomic backdrop.
Value stocks, although not as alluring as their growth counterparts, are essential for diversified portfolios. Investors will continue to look to find opportunities at current valuations.
ISRAEL RETALIATION
Late Thursday evening, Israel carried out a retaliatory strike against Iran in what was being described as a “limited” attack. The counterattack comes after Iran’s failed attack on Israel.
The strike caused volatility in the futures markets Thursday night, with the E-mini June S&P 500 futures losing around 80 points at its low point (near 4963.75 around 10:15 PM)7, then recovering those losses overnight and into the morning at the start of the New York trading session. To end the day, about half of those initial losses were recovered, with the June E-mini S&P 500 futures settling near 5003.757.
So, volatility erupted overnight on the Israeli strike last week, but markets digested the strike rather well and in a mostly orderly fashion on Friday, with the cash stock market session staying above the overnight lows made Thursday night in the S&P 500 futures.
TREASURY YIELDS RISE
Marking the third consecutive week of rises, the 10-year U.S. Treasury Yield made highs not seen since last November last week.
The rising Treasury yields coincided with continued dwindling expectations of Federal Reserve (Fed) rate cuts. (More on the causes of that below). According to the CME FedWatch Tool8, end-of-last-week probabilities showed a 16.6% chance of a cut in June, a 40.7% of a cut in July, and a 64.4% chance of a cut in September.
June probabilities fell sharply week-over-week, while July and September rate cut probabilities declined at a smaller rate.
FED COMMENTS
Comments from Federal Reserve Chair Jerome Powell’s fireside chat at the Wilson Center included the following: “Recent data have clearly not given us greater confidence” that inflation is coming fully under control and “instead indicate that it’s likely to take longer than expected to achieve that confidence.”
In addition, other Fed officials made similar comments last week, including Atlanta Fed’s Raphael Bostic.
S&P 500 RESILIENCE: A REMINDER IN TROUBLING TIMES
While others may panic, let’s be pragmatic. The S&P 500 is the broadest measure of the U.S. economy, and it was only down 3.05% last week while two countries launched missiles at each other. That’s 3%, not 10%. The point is that the broadest measure of the U.S. economy managed these events in an impressive and orderly fashion thus far.
Should the selloff continue, technicians and traders will undoubtedly start to look at the 200-day moving average in the S&P 500, which could potentially be a place where some buyers emerge.
Should the Middle East remain quiet over the weekend, markets could begin to normalize next week — it is just too early to tell what could happen.
BIG TECH EARNINGS THIS WEEK
This week, the rubber will meet the road, as the most anticipated earnings results of the quarter will drop.
The development of generative AI will get a fresh update this week, with Microsoft, Amazon Neta, and Google all reporting quarterly results.
Bulls9 (market participants who believe the market is on the upswing) are optimistic for big numbers and outlooks on the AI front, while bears (market participants who believe price drops are coming) and algorithms will be looking to punish companies that missed based on last week’s events.
So, it will be big tech earnings vs. the macroeconomic headwinds this week — a battle royale!
REFLECTING AND LOOKING AHEAD
Investors are dealing with higher interest rates and sticky inflation, and now the new unknown has been introduced: the evolving Middle East situation. It’s anybody’s guess if other unknowns could enter the market. China/Taiwan issues come to mind.
It has been a long time since a substantial pullback in the broader U.S. equity indexes, and so far, the S&P 500 is higher by above 4% year-to-date10 at the time of writing, even after last week’s 3.05% selloff.
This week brings us plenty of catalysts: big tech earnings, other earnings, Core PCE (the Fed’s “preferred” inflation metric), and GDP data. All the while markets will continue to digest the most recent inflation data and the Middle East events. This week should be an action-packed one as investors look for opportunities.
Until next time, have a wonderful week. As always, feel free to email or call us with any questions or needs.
We are always here as a resource for you.
The PensionmarkMeridien Team may be reached at 866-871-9963 or meridienteam@pensionmark.com
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Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark and WIA Holdings, LLC (“World”) are affiliated through common ownership with Pensionmark Securities, LLC. Securities offered through Pensionmark Securities, LLC (Member FINRA/SIPC).
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This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Citations:
1. Trading View, April 20, 2024
2. Trading View, April 20, 2024
3. Trading View, April 20, 2024
4. Investopedia, July 27, 2023
5 Trading View, April 20, 2024
6. Trading View, April 20, 2024
7. Trading View, April 20, 2024
8. CME Group, April 22, 2024
9. Investopedia, November 1, 2023
10. Slickcharts, April 22, 2024
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Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark and WIA Holdings, LLC (“World”) are affiliated through common ownership with Pensionmark Securities, LLC. Securities offered through Pensionmark Securities, LLC (Member FINRA/SIPC).