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EXPECT S&P 500 TO HOLD THE 4,000 LINE - STIFEL (1135 EDT/1535 GMT)
As weaker cyclical growth and high oil prices weigh on the S&P 500 in the low 4,000 area, Stifel's chief equity strategist Barry Bannister anticipates the benchmark index will not break below the 4,000 mark.
In a note on Tuesday, Bannister said that although the index is likely to hold above 4,000, a relief rally could be triggered if financial conditions ease with yields backing off, tighter spreads or a pullback in oil prices.
On the positive side, Bannister does not expect a recession in 2022, as the S&P 500 PE ratio, using normalized operating EPS, and U.S. Financial conditions index have already "unwound all the 2021 frothiness."
As major bear markets are associated with recessions, Bannister does not see one this year, since the Fed's policy rate is far below neutral and is likely to remains so for all of this year.
However, he does see the greater risk for recession in late 2023 should rising rates and lower inflation combine to lift the real fed finds rate to a bear market level, which would put stocks at risk for a bear market in the summer of 2023.
As for the Fed, Bannister sees the central bank pausing at the November meeting of this year, which could prompt a strong rally into the end of the year, which would leave the S&P where it began to start 2022, at around 4,766.
(Chuck Mikolajczak)
A POCKETFUL OF 'MEH' - ADP, SERVICES PMI, ET AL (1051 EDT/1451 GMT)
Fed day greeted market participants with a mostly lackadaisical batch of data, which cumulatively hint at an economy constrained by a host of issues including price pressures, labor market tightness and uneven recovery from the pandemic recession.
Private employers added 247,000 workers last month, according to ADP, its weakest showing since the initial shock of the pandemic shutdown.
The payrolls processor's latest National Employment index reading marked a sharp deceleration from March's 479,000 adds, and fell 37% short of consensus.
The number also falls significantly shy of the 385,000 private sector job adds analysts expect the Labor Department's more comprehensive employment report to show on Friday.
Rubeela Farooqi, chief U.S. economist at High Frequency Trading notes that while ADP is "far from consistent," in its prediction of official numbers, "recent data on the labor market including the downtrend in layoffs and ongoing job growth are signaling positive momentum, even as the supply side remains a constraint."
Breaking the data down, the lions share of the gains - 202,000, in fact - occurred in the customer-facing services sector (more on that to come), with leisure/hospitality, perhaps the biggest beneficiary of relaxed COVID restrictions, seeing the largest boost at 77,000.
The graphic below shows just how closely (or not) ADP agrees with Labor Department data:
Pivoting back to services - expansion in the sector unexpectedly lost some momentum in April.
Institute for Supply Management's (ISM) non-manufacturing purchasing managers' index (PMI) shed 1.2 points to deliver a print of 57.1, contrary to the modest gain economists predicted.
A PMI number over fifty signifies increased activity over the previous month.
While the sector has now notched 23 straight months of expansion, persistent cost increases and supply chain challenges are evident in the comments of survey participants.
Phrases like "pricing pressures and product availability issues continue to be extremely problematic," and "inflation, supply chain issues and access to qualified workers continue to be issues" are common throughout.
The report follows ISM's manufacturing PMI data released on Monday, which also suggested U.S. business activity is losing some steam:
The gap between the value of goods and services imported to the United States and those exported abroad widened more than expected in March to $109.8 billion - an all-time high.
While overall trade continues to gather momentum, post-pandemic demand recovery in the U.S. continues to outpace the rest of the world - the 5.6% increase in exports was handily offset by a 10.3% in imports.
It's worth noting that net exports were the biggest drag on first-quarter GDP, according to the Commerce Department's advance take on the data released last week.
This trend is "likely to continue for now," says Farooqi. "Looking ahead, fresh disruptions to trade flows are almost certain from the war in Ukraine and lockdowns in China."
Speaking of which, the closely watched goods trade deficit with China, which as faced headwinds attributable to the afore-mentioned restrictions to contain new COVID outbreaks, narrowed to $30.7 billion, the smallest its been since July 2021.
Finally, demand for home loans saw a modest 2.5% rebound last week as interest rates took a breather in their ever-upward march.
The Mortgage Bankers Association's (MBA) weekly series showed the average 30-year fixed contract rate shed one single basis point to 5.36%, no doubt exhausted from tracked benchmark Treasury yields to multi-year highs.
This prompted a 4.1% increase in applications for loans to purchase homes and a nominal 0.2% uptick in refi demand.
Noting that the typically strong spring homebuying season "has seen a slow start thus far," MBA’s associate vice president of economic and industry forecasting Joel Kan says "the purchase market remains challenged," citing low inventories and sky-rocketing prices in the wake of the pandemic-driven, suburban exodus.
"The affordability hit from higher mortgage rates that are forcing prospective buyers to factor in higher monthly payments," Kan adds.
Indeed, as illustrated by the graphic below, overall mortgage demand is down 49.8% from the same week last year:
Wall Street is mixed in morning trading, with the prospect of an increasingly hawkish Fed weighing on interest-rate sensitive growth stocks.
(Stephen Culp)
U.S STOCKS MAINLY RED AHEAD OF FED (1023 EDT/1423 GMT)
The S&P 500 is lower in early trade on Wednesday with the Nasdaq sliding more than 1%. The Dow Jones Industrial Average is posting a slight gain.
This following positive earnings from companies including Starbucks and Advanced Micro Devices, while investors braced for the biggest U.S. interest rate hike since May 2000.
Traders are pricing in expectations of a 50 basis points (bps) rate hike and the announcement of the start of reductions to its $9 trillion balance sheet when the Fed releases its statement at the end of its two-day policy meeting at 2 p.m. EDT (1800 GMT).
Meanwhile, the U.S. 10-Year Treasury yield hit 3.0110%, or a fresh high back to December 2018. With this, growth is underperforming value.
Here is where market stand in early trade:
(Terence Gabriel)
S&P 500 INDEX: DANCING AROUND AHEAD OF THE FED (0900 EDT/1300 GMT)
With Tuesday's higher close, the S&P 500 index has now put together back-to-back up days for the first time in about a month. This, just ahead of the much anticipated FOMC meeting with results due at 1400 EDT/1800 GMT Wednesday.
Monday's upward reversal off the 4,062.51 intraday trough came after the SPX essentially tagged support at its May 2021 lows in the 4,061.41/4,056.88 area. This zone was backed up by the rising 100-week moving average (WMA), which now resides around 4,041:
With the developing strength, the weekly momentum picture is improving. In early March, the RSI hit its weakest reading since early April 2020. However, with this week's bounce so far a slight positive convergence is forming. Thus, traders will be watching to see if this Friday's ending RSI level holds above last week's close of 31.5, and in so doing, if the SPX then ends a four-week losing streak.
In any event, the broken 23.6% Fibonacci retracement of the entire March 2020-January 2022 advance at 4,198.70 now presents a hurdle. The SPX hit 4,200.10 on Tuesday before backing away. A more sustained thrust above 4,198.70, confirmed by the weekly close, can clear the way higher with additional resistance at the descending 5-WMA, now around 4,292. The resistance line from the January record high is now around 4,555 on a weekly basis.
On the downside, a weekly close below the 100-WMA can suggest potential for much more pronounced weakness. The 38.2% Fibonacci retracement of the March 2020-January 2022 bull-phase is at 3,815.20 (while the March 2020 RSI trough is at 15.193).
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)