Potential Market Movers

The 10-year Treasury yield (TNX) was up 74 basis points in premarket, and some analysts are looking for another spike in the 10-year yield before the week is out. Many investors anticipated that the TNX will go to 3% soon, and the next technical level of resistance is around 3.25%.

China, Hong Kong, and Singapore were closed Monday for Labor Day, but economic news still came out over the weekend that didn’t look good for China. China reported manufacturing slowdowns and significant decreases in non-manufacturing purchases. The COVID-19 lockdowns in China are obviously having very negative effects on the country’s economy. Chinese regulators are also concerned about the fallout wartime sanctions on Russia are having on China.

Declining economic sentiment isn’t just a China problem.  Europe is also struggling. The eurozone’s April manufacturing purchases number was slightly higher than expected, but the April Business and Consumer Survey was lower, reflecting a negative outlook. Additionally, Germany reported negative retail sales growth in April and Italy and Spain both reported fewer manufacturing purchase orders for April.

Economic slowdowns in Europe and particularly China appear to be suppressing commodity prices. WTI crude oil futures were down 3.62% in premarket action and gold futures were down 2.45%. Last week, gold broke support around the $1,900 level and appears to be heading lower.

After the open, the ISM Manufacturing PMI report will be released, and investors will be able to see how U.S. manufacturing stacks up against China and Europe. Most of the United States isn’t living with pandemic restrictions like China and Europe, so they’re likely to perform better. However, the strong U.S. dollar has hurt U.S. exporters, which could reduce the number of purchase orders to U.S. manufacturers.

Reviewing the Market Minutes

March’s PCE report shook investors wondering how an already-hawkish Fed might react during the two-day Federal Open Market Committee meeting starting today. Investors were already expecting a 50-basis-point hike in the Fed’s overnight rate, but the CME FedWatch Tool revealed a small chance of a 75-basis-point hike last week. But this possibility has faded since Friday’s volatile session.

After rallying more than 3% on Thursday, Friday’s Nasdaq Composite ($COMP) gave back all of its gains and then some. The index began falling early in the session on news that Apple (NASDAQ: AAPL) anticipated future supply chain problems.  AAPL fell 3.66% on the day and ugly earnings miss Thursday by Amazon (NASDAQ: AMZN) caused it to fall more than 14%.

Negative earnings reports weren’t limited to tech stocks—even the energy sector saw misses from Exxon Mobil (XOM) and Chevron (CVX) despite enormous gains in revenue. The miss by CVX caused the stock to fall 3.16% which, as one of the Dow’s 30 industrials, helped bring down the Dow Jones Industrial Average ($DJI) 2.77% by the close.

Of the major indexes, the Dow had the best month but only because it fell the least—finishing off 4.9% for the month of April. The SPX dropped nearly 9%, the Russell 2000 (RUT) lost nearly 11%, and the Nasdaq fell more 13% in a volatile April. The Russell and the Nasdaq are now back in bear market territory because both indexes are more than 20% off their all-time highs.

Energy led all sectors last week with the Energy Select Sector Index returning 3.72%. It was followed by the Materials Select Sector Index at 0.87% All other sectors were negative for the week. The Consumer Discretionary Select Sector Index was the worst, falling more than 7%, indicating consumer hesitancy could be on the rise.

The Consumer Staples Select Sector Index, which tracks essential goods, was the only sector index to end the month in the green. It hung on to a gain of about 2%. The technology index finished down 12.57%, behind the consumer discretionary index which lost 10.78%.

Three Things to Watch

The PHLX Semiconductor Index (SOX) rallied on news of the shortages back in fourth quarter 2021 and gave back much of its gains in January. Today, it is underperforming the technology sector and the S&P 500 (SPX).  

Latest on Earnings: Refinitiv reported that as of last Friday the 275 companies in the S&P 500 have reported earnings and 80.4% have beat analyst estimates. That’s better than the long-term average of 66% but lower than the previous four-quarter average of 83.1%. This week, 160 S&P 500 companies are scheduled to report.

Energy and materials remain the top-performing sectors for earnings growth, while the financials sector has had the worst earnings growth. According to the Mortgage Bankers Association, mortgage applications have fallen 17% from their 2021 high. The slowdown in the mortgage markets is likely to continue to hurt financials as a whole and banks specifically.

However, neither Buffett nor his friend and partner Charlie Munger were willing to speculate on the future of inflation or the stock market. They criticized portfolio managers focused more on the S&P 500 index versus providing more customer value to justify their management fees. They also expressed concerned that younger investors were using the stock market to gamble instead of investing.

Notable Calendar Items

May 3: JOLTs Job Openings and earnings from Pfizer (NYSE:PFE), Advanced Micro Devices (NASDAQ:AMD), and Airbnb (NASDAQ:ABNB)

May 4: FOMC Interest Rate Decision and earnings from Novo Nordisk (NVO), Moderna (NASDAQ:MRNA), MetLife (NYSE:MET), and Marriott (NASDAQ:MAR)

May 5: Earnings from Shell (LON: SHEL), ConocoPhillips (NYSE:COP), and Anheuser Busch (NYSE:BUD)

May 6: Employment situation report and earnings from Alibaba (NYSE:BABA), and Cigna (NYSE:CI)

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Image sourced from Unsplash

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