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Market Multiple Chart: S&P 500

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What’s in Today’s Report:

  • Market Multiple Table Chart: S&P 500 (Separate PDF Available on Request)
  • CPI Preview – Will the Data Contradict Fed “Pause” Expectations

Futures are down modestly this morning, tracking global shares lower after soft earnings while focus turns to today’s CPI data.

ABNB shares are down 14% in premarket trade after the company offered disappointing revenue guidance after the close yesterday and that is weighing modestly on equities this morning.

Economically, German CPI was unchanged at 7.2% y/y in April, meeting analysts’ estimates, but importantly, the headline remains very elevated and much beyond policy makers’ 2.0% target which will support further tightening in the months ahead.

Looking into today’s session, U.S. inflation data will be in focus with CPI (E: 0.4% m/m, 5.0% y/y) due at 8:30 a.m. ET, but the more important figure to watch is Core CPI (E: 0.4% m/m, 5.5% y/y) as a print above 5.5% will raise concerns that price pressures are sticky and not declining which will warrant a continued, aggressive stance by the Fed.

There are no Fed officials scheduled to speak today but there is a 10-Yr Treasury Note auction at 1:00 p.m. ET that could move markets, especially in the wake of the CPI data as investors look for insight as to how the “smart market” is digesting the latest look at inflation.

Finally, earnings season is winding down but there are a few notably companies reporting today: TM ($2.83) before the open, and DIS ($0.89) after the close.

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.

Why Stocks Won’t Drop Part II: The Economy

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What’s in Today’s Report:

  • Why Won’t Stocks Drop Part II: The Economy
  • VIX Falls to 52-Week Lows – Chart

Hawkish money flows are dominating markets this morning with stock futures falling, yields rising and oil and gold both testing support after hot inflation data overnight.

Economically, U.K. CPI was 10.1% vs. (E) 9.8% y/y in March while the Eurozone Narrow Core HICP reading rose 0.1% to 5.7% meeting estimates. The two inflation prints are causing a hawkish shift in central bank policy expectations this morning, which is in turn rekindling hard landing fears.

Looking into today’s session, there are no notable economic reports today however there is a 20-Yr Treasury Bond auction at 1:00 p.m. ET that could impact both bond and equity markets.

As far as the Fed goes there are two speakers today, but both are after the close: Goolsbee (5:30 p.m. ET) and Williams (7:00 p.m. ET).

That will leave investor focus on earnings early with more big banks and notable consumer financial companies reporting ahead of the bell including: MS ($1.67), CFG ($2.15), SYF ($1.49), ALLY ($0.88), USB ($1.13), and TRV ($3.64), while TSLA ($0.85) and IBM ($1.27) will release results after the close.

Bottom line, the 2-Yr Treasury yield is testing a more than one-month high this morning and stocks are coming for sale broadly which underscores deteriorating sentient among investors with the S&P 500 trading well above 4,100 this week. And if earnings news is not encouraging today, and yields continue to move higher over the course of the session, the selling pressure on equities is likely to continue and liable to accelerate.

Sevens Report Co-Editor Tyler Richey Quoted in MarketWatch on April 13th, 2023

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U.S. oil futures finish lower, a day after marking their highest finish year to date

“The expectation that consumer demand will firm markedly in China as the economy continues to recover from the impact of strict economic lockdowns is another supporting factor for oil markets this week,” said Richey. Click here to read the full article.

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.

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.

Fed Wildcard to Watch

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What’s in Today’s Report:

  • Dynamics Between Stocks, Bonds, and the Economy Have Changed Since Covid
  • Fed Wildcard to Watch Today
  • KBE Chart – Visualizing the Recent Carnage
  • Existing Home Sales Rebound Amid a Pullback in Mortgage Rates: Chart

Stock futures briefly spiked lower overnight in the wake of a hot CPI print in the U.K. but bond markets are steady and futures have largely stabilized as focus turns to the Fed.

Economically, U.K. CPI jumped from 10.1% in January to 10.4% in February, well ahead of estimates of 9.9%, however, both input and output PPI readings unexpectedly declined, easing some of the inflation worries this morning.

There are no notable economic reports today which will leave markets focused on the price action in the banking sector in the morning (meaningful weakness could drag the broader market lower) before attention shifts to the FOMC Meeting Announcement (2:00 p.m. ET) and Fed Chair Press Conference (2:30 p.m. ET) this afternoon.

A 25 basis point hike and no change to the dot plot is the consensus expectation but there are a lot of moving pieces to today’s meeting so watching the reaction from the Treasury market this afternoon will be critical in interpreting what today’s decision means for markets.

Tom Essaye Quoted in Forbes on March 14th, 2023

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Inflation Fell To 6% In February—But Some Experts Fear Banking Crisis Could Make Prices Worse

“If the bank crisis is limited to just a few banks, then the actions taken on Sunday by the Fed and Treasury will prove inflationary,” says Sevens Report analyst Tom Essaye. “By backstopping the depositors, the government has avoided the lion’s share of economic loss from this crisis,” he says, and the $25 billion Bank Term Funding Program, which offers banks loans of up to one year, will increase the Fed’s balance sheet a time when it’s actively trying to shrink it, further reversing the central bank’s recent policy actions, Essaye explains. Click here to read the full article.

Tom Essaye Quoted in Forbes on March 6th, 2023

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Stocks Poised For Rally—But Don’t Expect It To Last, Noted Morgan Stanley Bear Wilson Says

“Don’t confuse the market’s ability to withstand last year’s headwind with an invincibility towards what could be this year’s headwind” of slumping economic growth, Sevens Report analyst Tom Essaye wrote in a Monday note. Click here to read the full article.

Powell Testimony Takeaways

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What’s in Today’s Report:

  • What Powell’s Comments Mean for Markets
  • Powell Testimony Takeaways

Stock futures are stable as yesterday’s Powell-driven losses continue to be digested while the yield curve is hitting new cycle lows with the 2-Yr Note holding above 5% for the first time since 2007 while the 10-Yr hovers just below 4%.

Economic focus was on German data o/n as Industrial Production topped estimates while the previous Retail Sales print was revised notably higher, bolstering Bund yields.

Looking into today’s session, focus will be on labor market data early, especially considering Powell’s “data dependent” policy comments from yesterday’s testimony.

The ADP Employment Report (E: 175K) will hit the wires before the bell and then JOLTS (E: 10.6 million) will be released after the open. Investors want to see some deterioration in the jobs market but not an all-out collapse while any indication of declining wages would be well received. International Trade in Goods and Services (E: -$69.0B) will also be released this morning but is less likely to move markets.

From there, Powell’s two-day testimony continues before the House Banking Committee today at 10:00 a.m. ET and investors will continue to listen intently for further clues about policy plans and terminal rate expectations.

Finally, there is a 10-Year Treasury Note auction at 1:00 p.m. ET that could move yields and ultimately impact the bond market, specifically if the auction tails and rates move meaningfully higher.