“Cautious Forward Guidance” Is The Big Market Takeaway For The Week

Market Down and Dirty

Last Week’s Economic/Market Summary

Data

• U.S. equities continued lower last week with all major indices losing over 2%.
  • S&P 500 -2.50% Dow -2.14% Russell 2000 -2.54%, Nasdaq -2.62%[1]
    • The All-Country World Index declined -2.00%.1
  • S&P 500 sub-sectors were mostly lower last week.
    • Utilities was the lone positive sector with a gain of over 1%.1
    • Energy was the worst performer at -6.24% followed by Healthcare at -3.84%.1
  • The CBOE Volatility Index (VIX) declined 2% but stayed above 20. 1

• US Treasury bond yields reversed off multi-decade highs and finished slightly lower.
  • US 2yr -0.05% at 5.02%, 10yr -0.07% to 4.86%, 30yr -0.08% to 5.01%.1
  • All eyes will be on the Treasury this week as they announce future bond sale plans this week.
• Commodities as an aggregate asset class were mixed last week.
  • WTI Crude lost -4.09%.1
  • Gold gained +1.20%.1
  • The US Dollar index rose +0.39%.1
• In our opinion, U.S. economic data continued to be mixed last week.
  • Global PMI’s came in slightly better than expected last week. 1
  • US 3^rd quarter GDP came in better than expected at +4.9% led by consumption. 1
  • Measures of the real estate market came in better than expected yet still very depressed. 1
• An index of equities outside the US (FTSE All-World ex-US) lost -1.19%.1

Conclusion

• US Equities finished the week lower across the board as earnings season continued with the biggest market takeaway is cautious forward guidance.
  • The Nasdaq led major indices to the downside by a small amount as all major indices were down over 2%.
  • What looked like the beginning of a positive rotation to value & small-caps mid last week got reversed by the end of the trading period.
    • We anticipate this was caused by deleveraging by large market participants vs any sort of new trend emerging.
• Heading into earnings season, we remind readers that the Nasdaq 100 was trading around 24 times projected profits, above the average of 21 times over the past decade. 1
  • Five of the seven biggest tech companies were priced above 28…these are the same companies that have driven the majority of stock market returns so far in ’23. 1
    • Earnings responses from these companies has driven the declines recently.
  • Bulls will have to figure out where market gains will come from if Big Tech stocks keep sputtering as these are the co’s that have offset widespread weakness in other areas of equities.
• S&P 500 subsectors were mostly negative last week.
  • Energy led to the downside by a wide margin as crude oil rolled over.
    • The oil complex is in an interesting situation as demand appears to be weakening while any expansion of the Israel/Hamas conflict is poised to drive oil prices higher.
  • Utilities were the lone positive sector as defensive names appear to have started to catch a bid.
• US Treasury yields saw a reprieve last week from their massive run higher.
  • This is a big week for the bond market as in the span of just a few days, investors will get updates from the major forces responsible for the unusually high volatility in fixed income.
    • The US Treasury will spell out how many new bonds it will sell to plug the budget deficit which is testing the market’s capacity to absorb seemingly endless supply of Treasuries. 1
    • The Federal Reserve meets for its most recent meeting with Chairman Powell speaking. 1
    • The Bank of Japan will telegraph where monetary policy is heading which may help shape demand from buyers overseas. 1
    • The latest monthly employment report will be watched to see if tighter monetary policy is in fact cooling the economy as much as policymakers want.
• 11 trading days have elapsed since JPMorgan Chase & Co. kicked off quarterly results, and the S&P 500 Index has declined in nine, with four of those sessions clocking drops more than 1%. 1
  • Shares of the firms that missed on the top and bottom lines have trailed the S&P 500 by an average of 5.7% on the first day post earnings, the worst showing in a year and the second worst in Bloomberg Intelligence’s data going back to 2017. 1
  • Various measures of the consumer continue to weaken despite 3^rd quarter GDP’s consumption component shocking to the upside by a wide margin.
    • It’s not just the housing market slowing down as sales of big-ticket, discretionary items like boats, motorcycles and swimming pools are taking a bigger-than-expected hit as higher interest rates prompt customers to hold off on purchases.

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net 

 1 Source: Bloomberg – 10/27/2023 

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