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S&P 500 DODGES BEAR, BUT DOW HAS LONGEST WEEKLY LOSING STREAK SINCE 1932! (1605 EDT/2005 GMT)
At one point Friday afternoon, the S&P 500 slid to 3,810.32, which put it down 20.6% from its January 3 record close, and on track to confirm a bear market.
However, with the 38.2% Fibonacci retracement of the March 2020-January 2022 bull-phase at 3,815.20, the SPX quickly reversed to the upside and ended just above flat on the day. It finished down 18.7% from its record close.
The Nasdaq Composite, which is already trading in bear territory, is now off 29.3% from its November record finish.
The Dow Jones Industrial Average ended down around 15.1% from its early-January record close.
In any event, the Dow did fall for an eighth-straight week, which is its longest losing streak since an eight-week run of losses from March-May 1932. The longest weekly losing streak in the Dow's history is a nine-week run of losses March-May 1923.
The S&P 500 and Nasdaq Composite are now down seven-straight weeks. It's the SPX's longest run of weekly losses since an eight-week losing streak in February-March 2001. The Nasdaq had a seven-week losing streak in February-March 2001.
Regarding the ongoing weakness, Peter Tuz, President, Chase Investment Counsel, said "How long it lasts will depend on when inflation breaks. The bear market will break at the same time or maybe slightly ahead of that. We have some Fed rate hikes over the next couple of months to contend with, some inflation data too. Then things will turn around."
Tuz added "What really flummoxed investors this week, myself included, is when you have the types of companies that typically do well in economic softness, do terribly, both as stocks and as companies. I'm thinking of Walmart and Target, and a few of the other companies of that ilk. These are the safe havens you run to in times of recession."
"If the consumer is feeling bad and makes up 70% of the economy, you just have to watch out for the next few quarters.”
Here is Friday's closing snapshot:
(Terence Gabriel, Herbert Lash)
NEXT WEEK'S ECO DATA: SECOND-STAB AT Q1 GDP ON THE DOCKET (1345 EDT/1745 GMT)
As market volatility, an ominous retail outlook, and the ongoing debate over whether the Fed's policy tightening will lead to the lollipops and rainbows of a soft landing or the hard landing of recession, investors are in for a string of potentially market-moving data releases next week.
The Commerce Department will be bringing the heaviest artillery, taking its second stab at first-quarter GDP on Thursday and its broad-ranging PCE bomb, due to be dropped on Friday.
On average, analysts expect the GDP number to hold firm, showing a -1.4% contraction on a quarterly annualized basis, but the estimates range from -1.6% to -1.2%.
The yawning trade gap - more on that later - was the biggest net detractor, but decreased government spending and private inventories also weighed on the topline, overcoming contributions from fixed investment and consumer spending.
Speaking of which, the following day the Commerce Department is expected to release its mammoth Personal Consumption Expenditures (PCE) report, which covers everything from income growth, outlays, the saving rate, and perhaps most importantly, the PCE price index, the Fed's preferred inflation yardstick.
Consensus projections see a 0.6% increase in personal income (a slight acceleration), outpaced by a 0.7% increase in consumption (a deceleration), which would result in the saving rate inching lower.
As for the price index, its year-over-year headline and core readings for March came in at 6.6% and 5.2%, respectively.
Should April's numbers come in lower, it will provide further confirmation - along with other major indicators - that inflation has indeed passed its peak.
Speaking of peak-passing, the latest New Home Sales and Pending Home Sales numbers are on the docket.
Economists polled by Reuters expect sales of freshly constructed residences to have fallen by 0.7% last month - a trifle compared with March's 8.6% plunge.
But the National Association of Realtors' Pending Home Sales index, which tracks signed contracts for the purchase of pre-owned homes and is considered among the sector's most leading indicators, will probably earn more scrutiny.
The index has been below its pre-pandemic level since the beginning of the year and sinking lower every month. And as it predicts the NAR's existing home sales data by two to three months, further declines would seem a harbinger that in the coming months existing home sales could continue to disappoint, as they did on Thursday.
U.S. manufacturing will have its moment in the sun when the indefatigable Commerce Department puts forth its Durable Goods report on Wednesday.
Consensus sees new orders for long-lasting U.S. goods growing by 0.5% in April, marking a deceleration from March.
Global financial information firm IHS Markit will publish its "flash" PMI data on Tuesday, and the Commerce Department's advance stab at the goods trade gap and wholesale inventories for April is expected on Friday.
Lastly, on Friday, the University of Michigan is due to release its final Consumer Sentiment print for May.
It will be interesting to see whether the "expectations" component diverges further from the PCE saving rate. If it does, it could suggest that rising prices - not confidence - is driving consumers to drain their piggy banks.
As consumers contribute about 70% to GDP, depletion of their spending power could be worrisome, indeed.
(Stephen Culp)
WATCH INFLATION EXPECTATIONS FOR CLUES THE STOCK ROUT IS OVER (1219 EDT/1619 GMT)
With the S&P 500 down nearly 20% from its January 3 record close, investors are worried whether there is much further stock market weakness to go. To help decipher this, watch inflation-linked Treasuries, according to JPMorgan.
Previous stock market drops outside of recessions have bottomed soon after prices fell 20% or more from the peak and, with the exception of the 1987 crash, declines did not surpass 20% by much, analysts including Jason Hunter said in a report.
Since 1980, shifts in expectations for monetary policy have helped to stabilize stocks during corrections, “which is why we remain focused on TIPS breakevens as a key cross-market indicator,” they said.
Breakeven rates on 10-year Treasury Inflation-Protected Securities (TIPS), a measure of expected annual inflation for the next decade, have dropped to 2.63%, after reaching a high of around 3.14% last month.
Breakevens are also showing topping patterns and developing downtrends, which has helped to stabilize expectations of the Federal Reserve’s rate path, JPMorgan said.
For example, the federal funds rate is now expected to be around 3% by June 2023, down from previous expectations of 3.4%, the bank said.
If the 10-year TIPS breakevens continue to trade below the 280-282 basis point area, then additional mean reversion is likely into the summer. And “we suspect that trend can lead to further mean reversion in 2022-2023 policy rate expectations over that period, which ultimately can help underpin the equity market,” JPMorgan said.
(Karen Brettell)
EUROPE JOINS WALL STREET INTO WEEKLY LOSSES (1158 EDT/1558 GMT)
For most of the session it looked as if European equities rose enough to secure some modest weekly gains but the STOXX 600 gradually lost its pace in afternoon trading after a weak open on Wall Street.
The pan-European index closed up 0.7% on the day and down 0.6% on the week.
That still compares quite favorably to the S&P 500 which at the time of the European close was down 0.7% and set for weekly losses of 3.7%.
On the surface, European bourses are better coping with a tumultuous 2022 with a 11.7% retreat year-to-date when the S&P is losing 18.7%.
But actually, it's easy to drop a pinch of salt as when one converts the performance of the STOXX 600 into dollars, the drawback is basically the same: 18%.
It's also fair to say that most investors on both sides of the Atlantic won't be holding their breath for a turnaround in sentiment anytime soon.
"Given how quickly the bounce earlier in the week fizzled out, it is likely that caution is set to persist", wrote IG analyst Chris Beauchamp in closing note.
(Julien Ponthus)
BEARS STILL HIGH, BULLS STILL LOW (1057 EDT/1457 GMT)
Optimism over the short-term direction of the U.S. stock market increased slightly in the latest American Association of Individual Investors Sentiment Survey (AAII). With this, pessimism also edged up, while "neutral" sentiment declined. Of note, most of this week’s results were recorded prior to Wednesday's sharp market drop.
AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, rose by 1.6 percentage points to 26.0%. Even with this week’s rise, optimism is below its historical average of 38.0% for the 26th consecutive week and "is unusually low for the 16th time out of the last 18 weeks."
Bearish sentiment, or expectations that stock prices will fall over the next six months, clawed its way up by 1.4 percentage points to 50.4%. This is the 25th time out of the past 26 weeks that pessimism is above its historical average of 30.5% and "the 15th time out of the last 18 weeks that bearish sentiment is unusually high."
Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, dipped by 3.0 percentage points to 23.6%. Neutral sentiment levels are below the historical average of 31.5% for the fourth consecutive week.
With these changes, the bull-bear spread narrowed slightly to -24.4% from -24.7% last week:
AAII noted that bullish sentiment remains "unusually low" while bearish sentiment continues to be "unusually high." The bull-bear spread is also "unusually low."
AAII added that "historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for bullish sentiment and for the bull-bear spread. Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500."
(Terence Gabriel)
WILL CRYPTO SLUMP CRIMP U.S. SPENDING? NOT MUCH (1025 EST/1425 GMT)
The terraUSD crash and the wider crypto pullback last week cost many individuals their entire life savings and hurt pockets of the market that were exposed to the terra project.
But the steep drop in crypto could have little impact on the broader economy and U.S. aggregate spending, according to Goldman Sachs.
GS' rough estimates indicate U.S. households own about one-third of the global crypto market, which has erased nearly half of its market cap from November peak to $1.3 trillion, according to Coinmarketcap.
That's very small to U.S. household net worth which stood at $150 trillion as of last year, GS said.
GS analysts continue to expect tighter financial conditions to lead to a sharp slowdown in growth and spending this year, but point out that "any incremental impact from the recent declines in cryptocurrency prices will likely be modest."
(Medha Singh)
MAJOR U.S. INDEXES POISED TO EXTEND WEEKLY LOSING STREAKS (1003 EDT/1403 GMT)
Wall Street's main indexes are higher early on Friday with banks and megacap growth shares rising on the last day of a week that saw heightened volatility on concerns about the impact of rising inflation and interest rate hikes.
In any event, the Dow Jones Industrial Average is still on pace to fall for an eighth-straight week. If so, it would be its longest losing streak since an eight-week run of losses from March-May 1932. The longest weekly losing streak in the Dow's history is a nine-week run of lower closes March-May 1923.
The S&P 500 and Nasdaq Composite are both on track for seven-week losing streaks. If so, it would be the SPX's longest run of weekly losses since an eight-week losing streak in February-March 2001. The Nasdaq had a seven-week losing streak in February-March 2001.
Here is an early trade snapshot:
(Terence Gabriel)
SMALL-CAP RUSSELL 2000 HITS SOME BIG SUPPORT (0900 EDT/1300 GMT)
The Russell 2000 has certainly been cut down to size. The small-cap index lost around 30% of its value from its early-November highs into its lows earlier this month.
However, the index has reached some big support:
Indeed, on May 11, the index closed at 1,718, or less than 6 points, or just 0.3%, from the 50% retracement of the March 2020-November 2021 bull-phase at 1,712.
After hitting an intraday low of 1,701 on May 12, or just 0.7% below the 50% retracement, the index has bounced, and ended Thursday at 1,776, up more than 3% from the May l1 close.
Additionally, the RUT's late-2018 and early-2020 highs at 1,742/1,715 can act as a support zone.
The RUT is also testing its 200-week moving average (WMA) which now resides around 1,773. The 200-WMA has been a long-standing potential magnet ever since the RUT's March 2021 disparity peak at 1.498 - click here:
It now remains to be seen if the 200-WMA disparity reading of around 1.000 can be sufficient enough from which the RUT can launch a renewed advance.
Of note, since the late 1990s, there have been six instances where the RUT's 200-week disparity reading peaked at greater than 1.30 and then collapsed back to and below 1.00, prior to the RUT then bottoming and advancing to new highs.
The 200-week disparity troughs ran from 0.986 to 0.498 with an average of about 0.79, and a median of about 0.82. Thus, a decline to these levels can suggest the RUT, in theory, would need to lose another 20% or so of its value.
That said, this week's current 1.002 reading is very close to 2011's 0.986 print. Additionally of note, if the RUT has now found a major two-day bottom around the 50% retracement of its prior advance, it would be very similar to the 2011 bottom. That bottom occurred at the 50% retracement of the 2009-2011 bull-phase (0.6% above the level with the October 3, 2011 close, and 0.6% below the level with the October 4, 2011 intraday low).
(Terence Gabriel)
FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)