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Why Earnings Caused Yesterday’s Selloff

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What’s in Today’s Report:

  • Why Earnings Results Caused Yesterday’s Selloff (The Results Weren’t Actually That Bad)
  • Chart: PKG Dropped Sharply on Cautious Guidance

Strong earnings and guidance from tech giants MSFT (+8%) and GOOGL (+1%) after the close yesterday are supporting gains in U.S. equity futures today while more cautious results in Europe are weighing on overseas markets.

Economically, Australian CPI fell to 7.0% vs. (E) 6.9% y/y in the first quarter, down from 7.8% in Q4, but the inflation reading is still well above target and serves as a reminder that global central banks still have work to do in order to get inflation under control.

Looking into today’s session earnings season slows down somewhat with only a few notable companies reporting, including: BA (-$0.98), and GD ($9.34) before the bell, and META ($1.96) after the close.

That will leave investors focused on economic data early with Durable Goods Orders (E: 0.9%) and International Trade in Goods (E: -$90.0B) set to be released. There are no Fed speakers today but there is a 5-Yr Treasury Note auction at 1:00 p.m. ET that could move yields and impact stocks in afternoon trade.

 

In Case You Missed It: Our Special Technical Market Update for Sevens Report Subscribers Was Delivered Monday Morning

We continue to receive overwhelmingly positive feedback from our subscriber base regarding Monday’s special technical market update.

The report included analysis on all asset classes starting with the major equity indices across various time frames before looking at the latest investment style and sector trends. Additionally, we dove into currency, commodity, and Treasury market technicals to help identify trends that present both risks and opportunities to portfolios in these historically uncertain market conditions.

Sevens Report – Is Conflicting Data Signaling a Shift in the Economy?

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What’s in Today’s Report:

  • Is Conflicting Data Signaling a Shift in the Economy?
  • Weekly Market Preview:  Earnings Take Center Stage (Lots of Key Reports This Week)
  • Weekly Economic Cheat Sheet:  Is Disinflation Continuing? (Key Inflation Stats on Friday)

Futures are sightly lower following a quiet weekend of news as markets look ahead to key earnings reports and economic data this week.

Economically, the only notable report was German IFO Business Expectations, which slightly beat estimates.

Debt ceiling headlines will increase this week as Republicans try to pass a debt ceiling bill, and if it fails to pass that will increase debt ceiling anxiety in the markets.

Today there is only one economic report, Chicago Fed National Activity Index (E: -0.02), and barring a major surprise that shouldn’t move markets.

Focus then will be on earnings, and especially the First Republic results after the close (estimates are $0.72/share).  Markets will want to see stability from what’s viewed as one of the most vulnerable regional banks.  Other notable earnings today also include KO ($0.65) and WHR ($2.44) which will give us insight into consumer spending.

 

Special Technical Market Update Delivered Today

The special technical report will be delivered via email later this morning.

Due to increased demand for more detailed technical insights from our subscribers, we have prepared a separate, special market update that provides detailed analysis of the current technical state of this market, including:

  • Major stock indices
  • Stock sectors
  • Investment styles (growth vs. value) and
  • Major trends in Treasury, commodity, and currency markets.

As the economy (and possibly markets) approach a tipping point and the Fed readies for the likely final rate hike, we can expect more volatility and conflicting fundamental economic data. Having high quality, plain-English technical analysis can help us better navigate this market.

Tyler Richey, Sevens Report CMT, has been the lead analyst on this special report, and we are all excited to deliver this value-add research to subscribers today.

Tom Essaye Quoted in Forbes on April 7th, 2023

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Labor Market Adds 236,000 Jobs In March—Lowest Since 2020—As Economists Worry Recession May Be ‘Underway Now’

The revisions fueled recession concerns that intensified this week, with “every major data point”—including jobless claims, manufacturing activity and construction spending—signaling the economy is slowing down and pushing some experts to worry it may be slowing down too quickly, says Sevens Report founder Tom Essaye. Click here to read the full article.

Current Market Assumptions (Why Stocks Remain Resilient)

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What’s in Today’s Report:

  • Current Market Assumptions (Why Stocks Remain Resilient)
  • Why Jobless Claims Jumped Last Week
  • Weekly Economic Cheat Sheet:  Inflation is the Key This Week (CPI on Wed, PPI on Thurs)
  • Weekly Market Preview:  Do Stagflation Risks Rise?

Futures are little changed following a mostly quiet weekend of news as investors digest the “Just Right” jobs report and look ahead to CPI on Wednesday and the start of earnings season on Friday.

Friday’s jobs report was “Just Right” with job adds rising 238k vs. (E) 230k and wages gaining 4.2% vs. (E) 4.3% y/y. The report is helping to slightly ease the hard landing worries from last week.

Today should be a mostly quiet day of trading as European markets are closed for the Easter holiday and there are no notable economic reports and just one Fed speaker, Williams at 4:15 p.m. ET, as investors will look ahead to Wednesday’s critical CPI report and the start of bank earnings on Friday.

 

It’s Not Too Late to Send Clients A Quarterly Letter!

If you are behind, please let us help!  Our Q1 ’23 Quarterly Letter was delivered to subscribers last Monday along with compliance backup and citations, and we’re continuing to hear from advisors how happy they are with the quality of the letter and how much time and work it’s saved them.  We also have not had one compliance rejection! 

You can view our Q4 ‘22 Quarterly Letter here.

To learn more about the product (including price) please click this link.

If you’re interested in subscribing, please email info@sevensreport.com.

Why Wasn’t “Bad” Data “Good” for Stocks Yesterday?

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What’s in Today’s Report:

  • Why Wasn’t “Bad” Data “Good” for Stocks Yesterday?
  • JOLTS and Factory Orders Takeaways

Stock futures are modestly lower this morning while short duration yields are on the rise amid some hawkish central bank developments but soft economic data overnight.

Internationally, the Reserve Bank of New Zealand raised rates by 50 bp vs. (E) 25 bp to 5.25% citing inflation that is still too high while RBA Governor Lowe pushed back on hopes that their rate hiking campaign is over. In Europe, the Eurozone Composite PMI fell to 53.7 vs. (E) 54.1.

Today, market focus will remain on economic data with the ADP Employment Report (E: 200K), International Trade in Goods and Services (E: -$68.7B), and ISM Services Index (E: 54.4) all due to be released this morning. Investors will be looking for further signs of moderation in the labor market (but not a collapse) and easing price pressures in the ISM report in order to restore optimism about a soft landing.

Additionally, the Fed’s Mester will speak at 8:30 a.m. ET and her recent comments about Fed funds pushing beyond 5% have contradicted what rates markets are pricing in for this year, so a reiteration of that view could push yields higher and weigh on equities.

 

Sevens Report Quarterly Letter Is Available Now!

Our Q1 ’23 Quarterly Letter was delivered to subscribers on Monday along with compliance backup and citations, and we’re already getting feedback about how it is saving advisors time and helping them communicate with their clients in this volatile environment!

You can view our Q4 ‘22 Quarterly Letter here.

To learn more about the product (including price) please click this link.

If you’re interested in subscribing, please email info@sevensreport.com.

The Bull Case vs. the Bear Case

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What’s in Today’s Report:

  • The Bull Case vs. the Bear Case
  • Weekly Oil Update and EIA Analysis

Futures are modestly higher and are extending Wednesdays’ gains following better than expected inflation data overnight.

Spanish CPI, which was the first inflation indicator to warn of the stall in disinflation, rose just 3.3% y/y, less than the 3.8% expectation and much lower than the 6% y/y reading last month. That’s offering some initial hope that disinflation has restarted.

Today focus will be on economic data, with Jobless Claims (E: 195K) the key report, although we also get the Final Q4 GDP (E: 2.7%).  There are also two Fed speakers today, including Collins (12:45 p.m. ET) and Barkin (12:45 p.m. ET) and markets will look for additional confirmation that the Fed has finally pivoted.

The True Indicator of Banking Stress

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What’s in Today’s Report:

  • The True Indicator of Banking Stress
  • Case Shiller Home Price Index and Consumer Confidence: Charts

Stock futures are trading solidly higher with overseas markets following some positive bank headlines out of Europe and strong price action in Asian tech shares.

BABA announced a corporate restructuring plan that sent shares higher by 14% overnight, boosting sentiment across Asian equity markets and buoying U.S. equity futures with tech leading the way higher.

In Europe, it was reported that UBS has brought back former CEO Sergio Ermotti to oversee the CS takeover which is further easing some of the angst surrounding the recent turmoil in the banking sector.

Looking into today’s session, there is one more housing data release to watch: Pending Home Sales (E: 1.0%) before Fed Vice Chair Barr continues with his Congressional testimony regarding recent bank failures at 10:00 a.m. ET. There is also a 7-Yr Treasury Note auction at 1:00 p.m. ET.

Bottom line, equity markets appear to be stabilizing but the tape does remain thin and tentative with the “pain trade” to the upside. One materially negative headline out of the banking sector or regarding Fed policy, however, could reignite the volatility of recent weeks.

Progress on the Banks?

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What’s in Today’s Report:

  • Weekly Market Preview:  Do the Banks Stabilize?
  • Weekly Economic Cheat Sheet:  Key Inflation Data on Friday

Futures are modestly higher following the successful merger of Silicon Valley Bank over the weekend.

First Citizens agreed to buy much of Silicon Valley Bank’s assets, and that resolution combined with larger deposit insurance chatter is helping stocks to rally this morning.

Economically, the only notable report overnight was the German Ifo Business Expectations and it was better than expected at 91.2 vs. (E) 88.0.

Today focus will remain on the banks and as has been the case, Frist Republic is the key – resolution for that bank remains the next step towards broader stability in the banking sector.  Economically, today we get the Dallas Fed Manufacturing Index (E: -13.5) and have one Fed speaker, Jefferson at 5:00 p.m. ET, but neither should move markets.

Dow Theory & Managing Risk-Reward in Stocks

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What’s in Today’s Report:

  • Dow Theory & Managing Risk-Reward in Stocks
  • What Is the TIPS Market Telling Us?

Money flows are decidedly risk off this morning with stock futures lower while Treasury yields fall sharply amid continued worries about the global banking system.

UBS shares are down more than 6% after Jefferies downgraded the bank following its acquisition of Credit Suisse while the bank is also under investigation regarding its bankers role in helping Russian oligarchs avoid sanctions following the Russian invasion of Ukraine.

Economically, measure of Core CPI in Japan came in hot at 3.5% vs. (E) 3.4% y/y while the European PMI Composite Flash was strong, jumping to 54.1 vs. (E) 52.0. Both data points have hawkish implication for respective central bank policy in the near term but banking fears are preventing a move higher in yields.

Looking into today’s session, there are two economic reports to watch: Durable Goods Orders (E: 1.5%) and the PMI Composite Flash (E: 49.3) while there is one Fed speaker: Bullard (9:30 a.m. ET). Markets want to see signs of slowing growth, but not a collapse, in the data, and a less hawkish tone from Bullard.

Bottom line, banks have reemerged as the primary influence on markets in the back half of the week and if the weakness in the sector continues today, stocks will have a very hard time extending yesterday’s modest bounce. Conversely if banks are able to stabilize, we could see the S&P 500 move back towards the 4,000 mark.

Fed Takeaways

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What’s in Today’s Report:

  • Is the More-Dovish-Than-Expected Fed Decision a Bullish Gamechanger? No. Here’s Why
  • Fed Decision Takeaways
  • EIA Data Takeaways and Oil Update

U.S. equity futures are rebounding modestly this morning but the price action is tentative as yesterday’s volatile reaction to the Fed decision and Yellen’s push back on “blanket” deposit guarantees are digested.

Looking overseas, the Swiss National Bank moved forward with a 50 bp rate hike overnight which showed policy makers’ increased confidence in the global banking system and continued commitment to reign in inflation pressures.

Looking into today’s session, there are a few economic reports to watch including: Jobless Claims (E: 195K) and New Home Sales (E: 645K).

There are no Fed officials scheduled to speak today but there is a 10-Yr TIPS auction at 1:00 p.m. ET which could offer some insight to the market’s view of long term inflation trends.

Bottom line, the late day selloff in equities yesterday was once again led by bank stocks after Treasury Secretary Yellen pushed back on the idea of expanded deposit insurance levels and today, that means bank stocks will again be in focus. If banks are able to stabilize, stocks broadly should be able to as well, but if we see more selling pressure, expect more volatility over the course of the day.