Dow +0.40%, S&P 500 +1.02%, Nasdaq +2.03%, Russell +1.05%, SOX +2.61%, Eurostoxx +1.37%, SMI +0.74%.
The weeks on Wall Street follow One another and are hardly alike. That of April 14 was marked by a sharp decline in the indices, led by the magnificent 7 which gave up nearly a thousand billion dollars of market capitalization. It’s a completely different scenario that the past week has in store for us, these same 7 recovering 654 billion dollars of stock market weight, knowing that it is often easier to slip than to bounce back into the happy kingdom of stocks. We will discuss the reasons for this return of risk appetite, first of all we will note once again that these seven are definitely the rain and shine of stock market indices which are now totally dependent on their stock market tribulations.
For two weeks, investors and stock indices have gone into “I love you, me neither” mode. In stock market language, this is called consolidation, a phenomenon which consists of sending the indices a little lower but not too much (less than 10%, otherwise “consolidation” becomes de facto “correction”), due to lack of positive inspiration, bullish fuel, valid reasons to continue the party in short. We know the reasons for this spring stock market blues, inflation refuses to bow out and calls into question the timetable for the Fed’s much-hoped-for rate cuts, which have already been partly integrated into prices by stakeholders. For the record, at the start of the year the most optimistic predicted around 7 cuts of 25 basis points in 2024, today, these expectations have melted like snow in the sun, we are now talking about a single cut, or even nothing at all. all, agree that this is enough to spoil the atmosphere. Recent macroeconomic statistics have done nothing to comfort the hearts of doves prone to distress. The CPI (Consumer Price Index) and PCE (Personal Consumption Expenditure) indices both showed inflation slightly above expectations in the United States, worse, in both cases it rebounded. “The icing on the cake”, the latest publication of GDP showed significantly less growth than anticipated, and the Cassandras on duty keep throwing the term “stagflation” at us for all kinds of reasons.
So, this past Friday the PCE came out above forecasts. Everyone was waiting for it, hoping for a completely different result for fear that the PCE would send Wall Street to the ground. To everyone’s surprise, as soon as the announcement was made, bond yields fell and stock futures took off. We scratch our heads on television sets, then the idea emerges that the evolution of prices has been inflated by the upward revision of the data for January and February, which therefore puts those for March into perspective, and presto! General round of relief, even if inflation remains clearly above the Fed’s objective.
The indices closed close to their highest of the day, the S&P500 (SPX) and the Nasdaq100 (NDX) put an end to three weeks, respectively four of incessant decline. The tech giants are doing the bullfighting, sponsored for the occasion by Alphabet, Microsoft and Nvidia. Shares of Google’s parent company climb 10% after recording a jump in quarterly profit and announcing its first cash dividend. At Microsoft, artificial intelligence has supported demand for cloud software and services. Its stock increased by 1.8%. Meta Platforms, the parent company of Facebook, the only member of the Magnificent Seven to make ground last week, recorded an increase of 0.4% on Friday. The other members of the Magnificent Seven – Tesla, Apple, Nvidia and Amazon – join Alphabet and Microsoft in their weekly rise. One of Friday’s biggest losers was Intel, which fell 9.2% after reporting a first-quarter loss and disappointing outlook. Its stock has fallen 37% this year despite the chipmaker’s attempted turnaround. The SPX podium is made up of communication services, tech and consumer discretionary. US Treasury bonds are regaining some color, the yield on the 10 year returns to 4.64% compared to 4.73% on Thursday. Technically its main resistance is located at 4.75% while the support to watch is in the 4.45% – 4.43% zone.
The dollar imitates the bond market and ignores the PCE, it falls slightly, this morning the EUR/USD pair is trading at 1.0721. Oil remains at $83 per barrel of WTI Light Crude and gold slows the pace, the barbaric relic consolidates its recent increases, this morning at $2,332 per ounce. Volatility crashes a little further, the VIX loses 2.2% to 15.03%, gloomy on this front, just as in terms of trading volumes, very calm for the season.
We scratch the surface of the SPX a little and we see that the latter recently made its 67th pullback (5% decline from a high) since 1928, that it sent numerous signals of an oversold state, that financial conditions market remains flexible (good that), that most technology stocks sent new oversold signals last week, that basic consumer goods progressed, a bullish signal and that finally financial stocks took off, reacting to an oversold state. To make it short, we have already seen significantly worse internal market indicators, I will spare you the historical behavior of the SPX following such a configuration, you have probably guessed it.
We take stock of the first quarter corporate results season in the United States. 78% of SPX firms beat expectations, with profits up an average of 5.6% from the previous year, according to LSEG data. The average over the last 5 years is 77%. So things are going pretty well for the moment.
In Europe the past week is also going well, the Eurostoxx50 increased by 1.8%, the Stoxx Europe 600 gained 1.74%, the CAC40 0.82%, the Dax 2.39% and the SMI soared by 0.15% (I’m going out…). LVMH, l’Oréal and Edenred are having a great week. We observe profit taking on Accor, BNP and Vinci. Novartis gained 5.7% thanks to growth of +11%, Amadeus and BAE Systems are progressing well.
This morning, the yen extended its gains to 2% against the dollar after very briefly exceeding 160. This sudden turnaround suggests official intervention to support the currency, to be monitored closely.
Humza Yousaf is preparing to step down as Scotland’s first minister after deciding he will not survive a confidence vote, according to the Sunday Times. Spanish Prime Minister Pedro Sanchez plans to say today whether he is resigning.
Antony Blinken will push for a truce in Gaza during Middle East meetings beginning today. Joe Biden spoke with Benjamin Netanyahu about efforts to negotiate the release of a hostage. Israeli officials believe the ICC is preparing to issue arrest warrants for senior government officials, according to the NYT.
On today’s macroeconomic menu, Germany will give the first inflation trend in the euro zone in April at 2 p.m.
BBVA publishes first quarter net profit higher than forecasts. Porsche AG reported lower-than-expected results for the first quarter. BHP is considering raising its offer for Anglo American, according to several sources. Eliott would have built a position in Anglo American… and in Sumitomo Corp. Deutsche Bank will take a provision for legal risk of 1.3 billion euros, linked to disputes with the former shareholders of PostBank. BMW will invest 20 billion yuan ($2.76 billion) in its Shenyang production base in China. Alphabet has passed the $2,000 billion capitalization mark for the first time in its history. Elon Musk (Tesla) makes a surprise visit to China, a week after giving up on going to India. Commentators see it as a symbol. The group signed an agreement on autonomous driving with Baidu. Apple would intensify its discussions with OpenAI to add features to its solutions. Turkey is in talks with Exxon Mobil for a multi-billion dollar LNG deal, according to the FT. Fitch downgrades Boeing’s credit rating outlook to ‘negative’ due to production and cash flow concerns. Zoetis sells its medicated food additives portfolio to Phibro for $350 million.
This night and this morning in Asia, the indices are all trading in the green, the bullish breeze coming from Wall Street is reinvigorating the bulls there. Tokyo is closed, Hong Kong advances 0.66%, Shanghai advances 0.77%, Seoul rises 0.17% and the Nifty50 gains 0.67%. The future SPX recovers 10 additional points and Europe opens up 0.3%.
The first estimate of European inflation for April will be available on Tuesday. In the United States, the unemployment rate for March will be announced on Friday, but it is the Fed’s decision on Wednesday that will attract all the attention. The American central bank is not expected to move its rates, but its comments will be listened to carefully by stakeholders given investors’ current fears about monetary policy. The publications calendar will still be plentiful with Apple, Amazon, Eli Lilly, AMD, Coca-Cola, McDonald’s and Pfizer in the United States. As well as Novo Nordisk, HSBC, AXA, Stellantis, GSK or Shell in Europe.
