April 10, 2021
Year to date the S&P 500 index which is tracked by the symbol “SPY” is near the middle of a channel since January 1st. As indicated on the chart below, the blue line is the 200-day moving average and the red line is the 50-day moving average. Between January 24th and March 21st, the SPY traded most of this time below the 200-day moving average and the 50-day moving average. Also, as of March 14th the 50-day moving average has crossed below the 200-day moving average, another sign of weakness. How long will the market stay in this trading range, will it break higher or lower? The conflict with Russia and Ukraine continues and the 10-year treasury has risen faster than most experts expected. We are in a defensive posture until things change. One glimmer of hope is that the VIX index, which is a sign of market volatility, has been declining since the beginning of March.
The VIX Index closed at 21.16 on 4/8, lower than the 3/1 close at 33.32. A declining VIX is normally bullish for the markets. I prefer the VIX below 20 and a VIX below 15 is more bullish.
Percent of stocks above their 50 day and 200 day moving average: On 3/1 only 26% of stocks were above their 50-day moving average, today 52% are above their 50-day moving average. Last month 38% of the stocks were above their 200-day moving average, today 47% are above their 200-day moving average. When 60% of stocks are above their 200-day moving average and the 50-day is rising and above the 200-day moving average, that is bullish. A sign of strength would be if the stocks above their 50-day moving average begin to rise higher, and even stronger when the 50DMA is above the 200DMA.
Federal Reserve: The next FOMC meeting announcement will be Wednesday May 4th. At this time there is an 82% expectation that the Federal Reserve will raise rates at one half percent.
Unemployment Rate: Total nonfarm payroll employment rose by 431,000 in March, and the unemployment rate declined to 3.6 percent, the U.S. Bureau of Labor Statistics reported April 1, 2022. Notable job gains continued in leisure and hospitality, professional and business services, retail trade, and manufacturing.
Inflation Rate: The annual inflation rate for the United States is 7.9% for the 12 months ended February 2022 — the highest since January 1982 and after rising 7.5% previously, according to U.S. Labor Department data published March 10. The next inflation update is scheduled for release on April 12 at 8:30 a.m. ET. It will offer the rate of inflation over the 12 months ended March 2022.
The 10-year Treasury index yield: The rate today is at 2.78%, higher than the March 1st close at 1.70%
Trading continues to be choppy and unpredictable. Caution is advised.
To view past Market Newsletters, go to www.freedomcapitalmanagement.com and on the home page you will see recent newsletters and for older newsletters go to the blog page tab at the top of the home page.
In this month’s recap: Stocks rallied as the Fed provided greater clarity on monetary policy, and investors became more upbeat about the economic outlook.
Monthly Economic Update
Presented by Guy Woolley, April 2022
U.S. Markets
Greater clarity on monetary policy and improved investor sentiment on the economic outlook propelled stocks to their first monthly gain of the year.
The Standard & Poor’s 500 Index led, gaining 3.58 percent. The Dow Jones Industrial Average added 2.32 percent, and the Nasdaq Composite picked up 3.41 percent.1
Rough Start, Strong Rebound
The month started out with the same anxieties that dragged the stock market lower in January and February: rising bond yields, slowing economic growth, elevated inflation, and Ukraine. The escalation of hostilities in Ukraine, along with a continuing stream of Western economic sanctions, heightened concerns over the war’s impact on inflationary pressures and the global economy, sending stocks lower in the early part of March.
Fed Raises Rates
A combination of strong economic data and the announcement by the Fed that it was raising rates by a quarter of a percentage point set the stage for a strong rebound in the second half of the month.
While stocks wobbled immediately following the Federal Open Market Committee’s news, investors subsequently reinterpreted the Fed’s aggressive steps as a serious commitment to taming inflation and a reassuring statement about the current health of the economy to withstand higher interest rates.2
Yield Curve Concern
Investors’ attention turned to the bond market as the month progressed. In early March, the spread between the 2-year and 10-year Treasury yields was 85 basis points. By March 30, that spread had narrowed, and some parts of the bond yield curve had inverted.3,4
Some view a yield curve inversion as a signal that the economy may be headed toward a recession. While yield curve inversions are not flawless predictors of future economic activity, its action was a concern and is likely to remain so in the months ahead.
Sector Scorecard
Every industry sector enjoyed a month of positive performance, with gains in Communications Services (+2.43 percent), Consumer Discretionary (+6.31 percent), Consumer Staples (+1.56 percent), Energy (+9.79 percent), Financials (+1.82 percent), Health Care (+6.45 percent), Industrials (+4.71 percent), Materials (+7.15 percent), Real Estate (+8.41 percent), Technology (+4.71 percent), and Utilities (+9.73 percent).5
What Investors May Be Talking About in April
The initial estimate of the first quarter’s Gross Domestic Product will be released on April 28.
It should provide investors with insight into how the economy weathered the stresses of a wave of Omicron infections early in the first quarter and the repercussions of Russia’s invasion of Ukraine, which started in late February.
At the same time it releases the GDP report, the Bureau of Economic Analysis also will report the Personal Consumption Expenditures Index (PCEI).
The PCEI is one of the benchmarks watched by the Federal Reserve to assess inflationary trends. The Federal Open Market Committee (FOMC) meets in early May so the index may play an oversized role in any decision on interest rates.
T I P O F T H E M O N T H
If you are presently retiring, moving, or divorcing, try tracking your expenses for the next few weeks or months. Significant life changes like these may mean revisions to your budget.
World Markets
Overseas markets rebounded in March, with the MSCI-EAFE Index gaining 1.15 percent.6
Major European markets were mixed, with losses in Italy (-1.55 percent), Spain (-0.40 percent) and Germany (-0.32 percent). The U.K. picked up 0.77 percent and France edged higher.7
Stocks in the Pacific Rim markets were led by a surge in Australia (+6.39 percent). China’s Hang Seng index lost 3.15 percent while Japan’s Nikkei added 4.88 percent.8
Indicators
Gross Domestic Product: The final read of fourth-quarter GDP annualized growth rate was 6.9 percent, revised down slightly from its previous estimate of 7.0 percent.9
Employment: Employers added 678,000 jobs in February. The unemployment rate dipped to 3.8 percent, while workers’ wages rose 5.1 percent from a year ago. The labor force participation rate ticked up to 62.3 percent from 62.2 percent.10
Retail Sales: Retail sales rose 0.3 percent, a deceleration from January’s increase of 4.9 percent.11
Industrial Production: Output from the nation’s factories, mines, and utilities increased by 0.5 percent, led by gains in the manufacturing sector.12
Housing: Housing starts rose 6.8 percent from January levels and were 22.0 percent higher versus February 2021.13
Existing home sales fell 7.2 percent as mortgage rates rose, and the median sales price jumped 15 percent from February 2021.14
New home sales slipped 2.0 percent from January’s and came in 6.2 percent lower year-over-year.15
Consumer Price Index: Consumer prices rose 0.8 percent in February, pushing the year-over-year inflation rate to 7.9 percent, the highest level since January 1982. Excluding the more volatile food and energy prices, the 12-month increase was 6.4 percent, up from 6.0 percent a month earlier.16
Durable Goods Orders: Orders of goods designed to last three years or longer were down 2.2 percent from a month earlier.17
Q U O T E O F T H E M O N T H
“If a window of opportunity appears, don’t pull down the shade.”
TOM PETERS
The Fed
The Federal Reserve raised interest rates by 0.25 percent, with the Federal Open Market Committee (FOMC) signaling that it may increase interest rates at a faster pace than it originally anticipated in December.
Based on its projections of the federal funds rate, the Fed may implement as many as seven quarter-point hikes this year and another three to four next year. The FOMC also indicated that it would soon announce its strategy for reducing the Fed’s $9 trillion balance sheet.18
|
MARKET INDEX |
Y-T-D CHANGE |
April 2022 |
|
DJIA |
-4.57% |
2.32% |
|
NASDAQ |
-9.10% |
3.41% |
|
S&P 500 |
-4.95% |
3.58% |
|
BOND YIELD |
Y-T-D |
April 2022 |
|
10 YR TREASURY |
0.82% |
2.33% |
Sources: Yahoo Finance, March 31, 2022.
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.
T H E M O N T H L Y R I D D L E
1987, 1993, 1997, 1999. These are not only years on the calendar but also prime numbers. After 1999, what was the next year that was also a prime number?
LAST MONTH’S RIDDLE: You walk into a restaurant and the wood beneath your feet is neither straight nor smooth – even though the manager tells you the wood was just laid down the night before. The pieces are uneven, yet no one trips or falls. What kind of wood is on the floor of this restaurant?
ANSWER: Sawdust.
Guy Woolley may be reached at 415-236-5364 or guy@freedomcapitalmanagement.com
www.freedomcapitalmanagement.com
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalization in the FTSE Developed Europe Index. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE TWSE Taiwan 50 Index is a capitalization-weighted index of stocks comprising 50 companies listed on the Taiwan Stock Exchange developed by Taiwan Stock Exchange in collaboration with FTSE. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
CITATIONS:
1. WSJ.com, March 31, 2022
2. WSJ.com, March 17, 2022
3. Treasury.gov, March 31, 2022
4. CNBC.com, March 28, 2022
5. SectorSpdr.com, March 31, 2022
6. MSCI.com, March 31, 2022
7. MSCI.com, March 31, 2022
8. MSCI.com, March 31, 2022
9. BEA.gov, March 30, 2022
10. WSJ.com, March 4, 2022
11. CNBC.com, March 16, 2022
12. Morningstar.com, March 17, 2022
13. MarketWatch.com, March 17, 2022
14. CNBC.com, March 18, 2022
15. Census.gov, March 23, 2022
16. WSJ.com, March 10, 2022
17. Morningstar.com, March 24, 2022
18. WSJ.com, March 17, 2022