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S&P 500 SCORES 4TH GAIN OUT OF PAST 5 SESSIONS (1605 EDT/2005 GMT)
Major U.S. stock indexes ended sharply higher for a second straight day on Thursday, with the Nasdaq up more than 2% in a broad-based rally driven by the consumer discretionary and technology sectors.
Most major S&P 500 sectors ended higher, with consumer discretionary up 4.8% and technology up 2.5%. The S&P 500 is now up for four of the last five sessions, but remains down roughly 15% year-to-date.
Just real estate eased on Thursday, ending down 0.1%.
Shares of Macy's shot up after the retailer reported results and raised its guidance. Dollar General Corp and Dollar Tree also jumped, following their annual sales forecast increases. The upbeat news followed some disappointing reports from other retailers in recent days, fueling concerns that sky-high inflation may be denting consumer demand.
Data Thursday showed the number of Americans filing new claims for unemployment benefits fell last week, while a separate report confirmed the economy contracted in the first quarter.
Indexes staged a late rally Wednesday in the wake of minutes from the most recent Federal Reserve meeting. The minutes showed policymakers agreed that inflation was a key risk for the economy and that all participants at the May 3-4 policy meeting backed a half-percentage-point rate increase to combat inflation.
Some market watchers said the minutes gave some relief to investors worried about seeing a more hawkish tone from policymakers.
Investors have been worried that aggressive moves by the Fed to tame inflation could eventually tip the U.S. economy into recession.
Here is the closing U.S. snapshot:
(Caroline Valetkevitch)
ENERGY MAY BE NEAR THE TAIL END OF ITS RUN (1405 EDT/1805 GMT)
The U.S. energy sector's sharp run higher is likely to continue a bit longer but could reach a peak in mid-June, according to Mark Newton, managing director and head of technical strategy at Fundstrat.
"Energy remains the best performing group, and while stretched, still looks to offer alpha into mid-June," he wrote. "I am expecting Crude likely backs off after a spike higher into June."
The S&P 500 energy sector is up 1% on Thursday following gains in oil prices and a broad rally in stocks. The sector is up about 55% year-to-date - by far the best-performing group in the S&P 500, which is down about 15% for the year so far.
The energy select sector fund has rallied "largely for defensive reasons given ongoing market volatility," Newton wrote.
Of note, the S&P oil and gas exploration ETF has broken out of a triangle consolidation pattern, a positive technical sign for the sub-sector, he added.
"Bottom line, this looks to be a final exhaustion wave up in Energy that likely will stall out and turn lower sometime in June," Newton wrote. "For those with shorter time frames, this group is still working, but increasingly looks like a poor risk/reward on further strength over the next 1-2 weeks."
(Caroline Valetkevitch)
CHINA'S GROWTH CLOUD MAY HAVE A SILVER LINING (1330 EDT/1730 GMT)
Shanghai is set to lift its COVID-19 lockdown next month, but China's economy is likely to struggle for quite a while longer.
Most major investments firms have lowered their forecasts for China growth this year, including Wells Fargo. Economists there expect 2022 gross domestic product growth of 4.2%.
"Similarly to our global growth forecast, risks around our 2022 China GDP forecast also remain tilted toward slower growth than we currently forecast," they write.
However, there could be a silver lining to China's current woes.
China’s economy gradually slowing down is inevitable, necessary, and potentially healthy given the systemic issues created by the country’s skyrocketing growth over the past decade, Professor Zhu Ning, Professor of Finance at Shanghai Advanced Institute of Finance, told the Reuters Global Markets Forum.
"“The super-fast growth speed has created challenges such as the housing bubble, rising debt, and lower birth rates in the past decade,” said Ning.
He added that the recent emphasis on carbon neutrality and prevention of systematic financial risks are resulting in policy shifts which will help China transition to a more sustainable and inclusive growth model.
Still, a darkening China picture bodes poorly for the global economy. Wells Fargo points to South Korea, Singapore, Chile, South Africa and Russia as having high "overall China sensitivity."
"A sharper slowdown in China can weigh on each of the countries' local economies, and given these economies represent a somewhat sizable portion of global growth, the global economy could decelerate even further," they write.
And while investors are getting nervous, pulling out of yuan-denominated bond funds and sending the iShares MSCI China ETF near its March 2020 lows, Ning thinks this is only temporary.
"The current outflows should be put into the context of very strong capital inflows in the past couple of years, I expect this to gradually cool off and the capital will once again find opportunity in China in the long run."
(Lisa Mattackal, Divya Chowdhury)
CONSUMERS BACK IN VOGUE BUT RISKS REMAIN (1314 EDT/1714 GMT)
The S&P 500's consumer discretionary sector was rallying sharply on Thursday, last up 5.3%, as investors piled back in after a massive exodus in recent days with dollar stores, cruise lines and resorts leading the charge.
Retailers were hammered last week after results from Walmart , Target and some others disappointed so badly investors turned wary of the entire sector.
"It brought a downdraft across the entire spectrum and was as if the consumer had disappeared," said Quincy Krosby, chief equity strategist at LPL Financial in Charlotte, North Carolina. "The share prices for consumer discretionary were enveloping every negative scenario including a recession."
But then it became apparent this week that all of retail was not uniformly miserable, with companies including Nordstrom and Macy's releasing decent numbers and upbeat financial forecasts. Williams-Sonoma, up 13.9%, also beat quarterly revenue expectations on strong demand for its furniture and home improvement goods.
Macy's, up 18.4%, raised its annual profit forecast on Thursday, helped by strong demand for high-margin apparel from consumers returning to weddings and other events.
This was after upbeat profit forecasts pushed Nordstrom up 5.3% Thursday, after adding 14% Wednesday, and Ralph Lauren up 6.2%, underscoring a edge high-end chains have over the wider U.S. retail industry, thanks to the deep pockets of their customers.
With the labor market still strong consumers "are spending, perhaps more carefully, but they're still spending." said Krosby. "Couple that with share prices that were down dramatically, so what you have is your rally today."
While the upbeat mood from retail numbers helped the tone across the entire equity market on Thursday, the strategist is carefully monitoring the influence of high inflation and Federal Reserve tightening on consumer spending.
"The Fed is still raising rates. We have to see what that that does to consumer spending. The prices for food and the prices at the pump are still high. That is cutting into discretionary spending for lower and even lower-middle income wage earners. It's still fluid. But the fact is, the picture isn't as bleak as last week," she said.
Still, one cannot ignore the mixed economic message from a massive U.S. dollar store chain rally on Thursday after Dollar Tree, up 21.8%, and Dollar General, up 14.0%, raised sales expectations for the year as an increasing number of Americans had to become more frugal.
(Sinéad Carew)
U.S. HOUSING MARKET: SINKHOLE ON THE LAWN? (1244 EDT/1644 GMT)
The largest single asset class in most family’s portfolio is their home, and according to Interactive Brokers' chief strategist, Steve Sosnick, housing affordability is cratering.
As Sosnick sees it, the steep rise in the median home price in the U.S. cannot be maintained:
"If we see an asset rising at a fairly modest pace that then suddenly increases the pace of its ascent, it is quite sensible to think that the new pace is unsustainable."
But Sosnick believes it's also important to note that the rising housing prices were accompanied by a similarly stunning drop in mortgage rates – until very recently.
A key factor facing potential homeowners is affordability, which is a function of a house’s price and the monthly mortgage payment it requires. To Sosnick, it is clear that the combination of sharply rising home prices coupled with sharply rising mortgage rates bodes dismally for housing affordability.
Using an internally created affordability index, Sosnick says that the average required mortgage payment decreased through much of 2018-2020, and that payments didn’t rise above their prior peak until late in 2021.
However, the real problem has developed over the past three quarters. He says that the payment required to buy the median house with the median mortgage has increased by about 27% – from $1562 in the 3rd quarter of 2021 to $1994 in the 1st quarter of 2022.
"A 27% rise in almost any out-of-pocket cost is unlikely to be sustainable. Real wages have increased, but at nowhere near that pace. As the Federal Reserve continues to raise rates, it seems unimaginable that housing prices can maintain their current levels – let alone rise."
CHIP RALLY DEFIES NVIDIA'S WEAK FORECAST (1230 EDT/1630 GMT)
U.S. chip stocks are rallying on Thursday, joining a broader rebound in growth stocks, despite a poor quarterly forecast from megacap Nvidia and following Broadcom's announcement of a $61 billion deal to buy VMWare.
Upbeat price action across chips and other tech stocks, despite some negative headlines, hints that Wall Street's recent 'sell first, ask questions later' mentality may be changing.
Recently beaten down shares of Nvidia are jumping more than 5%, even after at least 13 brokerages cut their price targets following the company's warning late on Wednesday of a slowdown in sales of graphics chips for videogames.
Rival Advanced Micro Devices is rallying almost 8% and the Philadelphia Semiconductor Index is gaining nearly 4%, up for a second straight day following weeks of punishment that have left it near one-year lows.
Nvidia and AMD are Wall Street's second and third most traded stocks, with a combined $17 billion worth of shares traded, compared to $14 billion worth of shares traded in market leader Tesla.
Growth and tech names from Amazon to Roblox are rebounding and the S&P 500 technology index is gaining 2.5%, even after a disappointing report late on Wednesday from Snowflake, which sent the cloud software firm's stock down 1.3%.
Broadcom's newly unveiled deal to buy VMWare, the chipmaker's biggest bid to diversify its business into enterprise software, signals to investors that major deals remain on the table, even in the face of rising interest rates and the threat of a recession.
Thursday's gain in the SOX puts the index at its highest level in six sessions, and leaves it down about 24% year to date.
(Noel Randewich)
A KEYNESIAN FEEL TO EUROPE'S CLOSE (1205 EDT/1605 GMT)
There was initially little reaction across the London stock exchange when British finance minister Rishi Sunak unveiled his plans for a 25% windfall tax on oil and gas producers' profits.
It felt like the expected policy shift was already broadly priced in a classic 'buy the rumor, sell the news' twist.
As the dust now settles, however, it's fair to say that the impact was, in fact, quite important for some UK utilities.
The FTSE 350 Utilities index, at first little moved by the new tax, started to seriously lose ground around 1300 local time and was down over 4% at the close, with British gas owner Centrica losing over 7%:
One must note, however, that the plan's fine prints meant some big corporate names felt little pain.
"BP (+1.7% at the close) in particular has promised big investment in the UK’s energy infrastructure, investment that will now deliver a rather impressive tax break", Danni Hewson, an analyst at AJ Bell wrote in a note.
But the most impressive market price action triggered by Sunak's plan didn't occur because of the windfall tax, but rather by the boost on demand provided by his 15 billion pound package to help households cope with soaring energy bills.
Given the expected fiscal boost, economists at AXA Investment Managers said they lifted their 2022 UK GDP forecast from 3.8% to 4%.
Shares in UK retailers, which were on a rising trend since the open, kept at it through the session and closed with whopping gains.
"Beleaguered retailers enjoyed something of a renaissance," commented AJ Bell's Hewson, adding that "those middle-income shoppers might not trade down in search of value particularly when it comes to special occasions like next weekend’s Jubilee".
Marks & Spencer led the way up and jumped 8%:
There was a clear crossover effect on the broader market with the pan-European retail index jumping 4.8%, by far the best-performing segment of the market.
In the same manner, the pan-European utility index was the worst performer, losing 1.2%.
All in all, Europe's STOXX added 0.8%.
See: UK imposes 25% energy windfall tax to help households as bills surge
(Julien Ponthus)
A SHEEP IN WOLF'S CLOTHING: GDP, PENDING HOME SALES, JOBLESS CLAIMS (1105 EDT/1505 GMT)
Data released on Thursday brought good news wrapped in bad - while inflation persists and warrants expected Fed tightening, the economy is showing signs of softness which could prompt a dovish pivot from Powell & Co by autumn.
The U.S. economy contracted a bit more than originally thought in the first quarter, dropping 1.5% on a quarterly annualized basis.
The Commerce Department's second stab at GDP data unexpectedly added 0.1 percentage point to the decline, moving in opposition to consensus expectations, which predicted a 1.3% reading.
Many analysts believe the first-quarter contraction was a one-off glitch.
"Our baseline remains that the economy will continue to expand this year, but the pace will moderate," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics, who adds that the economic landscape "currently remain(s) favorable for (Fed) policy normalization."
On a granular level, much of the downward revision appears to be due to steeper-than-previously-reported drops in construction spending - particularly in the residential segment - and federal government outlays.
The biggest drag on first-quarter GDP was the yawning trade gap, followed by inventory depletion, the latter a likely symptom of ongoing supply chain headaches:
The report's most pleasant surprise was the upgrade in the personal expenditures component to 3.1% from 2.7%, a sign that the American consumer - who is responsible for about 70% of the economy - was healthy and kicking in the opening months of the year.
In total, as illustrated in the graphic below, consumers mitigated the topline decline by 2.1 percentage points:
But that was then; the first quarter of 2022 seems like ancient history, and more recent data suggests a slowdown in consumer spending, as punishingly high inflation threatens to dampen their purchasing power.
Nowhere is that more apparent than the housing market, where home affordability is fading as rising housing prices and mortgage rates are shoving the prospect of ownership beyond the grasp of many potential buyers.
Signed contracts for the sale of pre-owned U.S. homes decreased by 3.9% last month, according to the National Association of Realtors (NAR).
Not only did the print undershoot the 2.0% projected drop, it marked an acceleration from March's sharper-than-previously-reported 1.6% decline.
With this, pending home sales - considered among the more forward-looking housing market indicators - have fallen for six straight months, continuing their descent below pre-pandemic levels.
In fact, contracts for existing home sales have plunged to the "slowest pace in nearly a decade," says Lawrence Yun, chief economist at NAR. "Escalating mortgage rates have bumped up the cost of purchasing a home by more than 25% from a year ago, while steeper home prices are adding another 15% to that figure."
Finally, the number of U.S. workers filing first-time applications for unemployment benefits last week came in below expectations, falling by 3.7% to 210,000.
While still at the lower end of a range economists typically associate with healthy labor market churn, the slide in jobless claims speaks to ongoing tightness in the labor market as evidenced by low unemployment and a near record number of job openings.
That, in turn, increases probability that high wage inflation is staying hot, for now, and will help keep the Fed's feet to the fire.
But calling last week's dip in initial claims a "partial correction," Ian Shepherdson, chief economist at Pantheon Macroeconomics, says the "trend in claims probably is rising slowly," and therefore "consistent with the idea that payroll growth is slowing."
The chart below shows this upward trend - jobless claims hit their trough in late March at 166,000, 26.5% below last week's reading.https://sphinx.thomsonreuters.com/graphics/#/
Ongoing claims, reported on a one-week lag, defied analyst forecasts by surging 2.4% to 1.346 million, also supporting the notion that the tight labor market could be on the cusp of loosening its grip.
Investors were in a buying mood in morning trading, sending all three major U.S. stock indexes sharply higher.
Economically sensitive transports, chips and smallcaps were outperforming, but megacap market leaders were providing the muscle.
(Stephen Culp)
WALL STREET EXTENDS WED'S RALLY IN EARLY GOING (1000 EDT/1400 GMT)
The three major U.S. stock indexes are up more than 1% in early trading Thursday, with the market on track to extend Wednesday's jump with consumer discretionary leading sector gains for a second day.
Indexes staged a late rally Wednesday in the wake of minutes from the most recent Federal Reserve meeting. The minutes showed policymakers agreed that inflation was a key risk for the economy and that all participants at the May 3-4 policy meeting backed a half-percentage-point rate increase to combat inflation.
Some market watchers said the minutes gave some relief to investors worried about seeing a more hawkish tone from policymakers.
Data Thursday showed the number of Americans filing new claims for unemployment benefits fell last week, while a separate report confirmed the economy contracted in the first quarter.
Investors have increasingly worried that an aggressive Fed could eventually force the U.S. economy into recession.
All major S&P 500 sectors are higher, with consumer discretionary leading the pack for a second-straight session.
Shares of Macy's are up 14% after the retailer reported results and raised its guidance. The upbeat news follows some disappointing reports from other retailers.
Here is the early market snapshot:
(Caroline Valetkevitch)
NASDAQ COMPOSITE: RIPE FOR RALLY OR REAL TURN? (0900 EDT/1300 GMT)
Over the past several weeks or so, the Nasdaq Composite has been chopping around sticky support. With this, one measure on internal strength, the Nasdaq New High/New Low (NH/NL) index is mounting a constructive turn suggesting burgeoning underlying strength.
Since first testing the 50% retracement of the March 2020-November 2021 advance, at about 11,422, on May 11, IXIC closing and intraday violations of this level have been at most 1.4%-3.4%, before the index has snapped back above it. With Wednesday's upward reversal, the Composite ended slightly above it at 11,434, and up around 0.6% vs its May 11 close.
Of note, neither CME e-mini Nasdaq 100 futures, or the Nasdaq 100, which have also been testing their 50% retracement, has yet to see a closing violation of it - click here:
Meanwhile, on May 19, the Nasdaq NH/NL index fell to just 3.8%, which was its lowest reading since a 3.6% print on March 26, 2020. This measure hit a low of 1.2% on March 23, 2020, which marked the Nasdaq's pandemic-crash bottom:
The NH/NL index has crossed above its 10-day moving average (DMA) and has now risen four-straight days, ending Wednesday at 6.3%.
Admittedly, the measure's current 4-day rate-of-change is the second weakest such thrust off of a sub-5% trough in its history. That said, the NH/NL index is rising off a historically low level and is now above its 10-DMA.
Since the measure has not shown a tendency to flat-line at low levels, a further rise would suggest greater internal Nasdaq strength, which could underpin a surprise IXIC rally of some form. The early-April high was 42%.
A break back below the 10-DMA, which ended Wednesday at 4.5%, can suggest potential for a fall even closer to zero. The all-time low was 0.5% in November 2008.
(Terence Gabriel)
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