Once again, stocks bolted higher, led by the chip sector, which has been moving parabolically over the past several months, overlooking the global geopolitical issues, choosing to concentrate on decent economic fundamentals and the momentum to the upside. As noted recently, there are several reasons for this, including a resilient American consumer which feed into robust corporate earnings fundamentals, the prevalence of a “buy the dip mentality” that has been in place for more than fifteen years, the perception that price hikes in oil are temporary and the expectations of an eventual deescalation or even better, a permanent end to the war. We left the most important reason for last and that is the strength that corporations have shown when reporting quarterly earnings. This has kept the downside limited during times of bearish news and investors hungry to buy on dips. There is no reason to think this won’t continue.
· “The bull market that began on 10/12/22 just before the release of ChatGPT continues to extend in length with each new all-time closing high…. The current bull market is now at 1,304 days and needs to continue just 21 days to eclipse the 1,324-day bull from June 1962 to February 1966. That bull market in the mid-60s only saw the S&P gain 79.8%, however. This bull is now up 106.6%, putting it just below the average bull-market gain of 114% since 1928.” (Source; Bespoke Investments).
· According to Edward Jones, “with 89% of S&P 500 companies having now reported, a full 84% have better-than-expected earnings per share, comfortably above the typical beat rate over the past five years. The blended earnings growth rate for the index is tracking nearly 28% in Q1, which, if maintained, would be the strongest delivered since 2021. Ten of eleven sectors are reporting positive year-over-year earnings growth, with seven of these in double digits.”
· Despite the rally, most stocks are not participating as according to Scott Rubner, head of equity and derivatives strategy at Citadel Securities and as reported by CNBC, “only 22% of S&P 500 members have outperformed the benchmark over the past 30 days. That’s the smallest number in three decades.” The report went on to note that, according to Rubner, “’this is in stark contrast to the February environment … where low implied correlations coincided with broad participation and elevated dispersion – with 65% of S&P 500 constituents outperforming the index over a 30 day period, a 97th percentile reading.’” The bottom line, the recent rally has been historically narrow. Be careful chasing the recent leaders at this point.
· According to the Federal Home Loan Mortgage Corporation (Freddie Mac), “the 30 year fixed rate mortgage averaged 6.37% this week. Recent data points to slightly better conditions for buyers with a boost in new-home sales, median new-home prices being down to their lowest level since July 2021, and higher inventory than in recent years. Together, these trends could modestly ease affordability pressures through the spring homebuying season.”
Economic Data That Drove Market Sentiment This Past Week…
· Non-Farm Payrolls (approximately 80% of the U.S. workforce) rose by115,000 during April, far exceeding the consensus estimate of 70,000. Payrolls for March and February were revised to 185,000 and -156,000 from 178,000 and -133,000 for a net revision of -16,000. This brings the net three-month average to 48,000 and the six-month average to 55,000. Economists continue to consider the impact of a lack of immigration, advances in technology as well as the current economic environment. Private Sector companies added 123,000 jobs while the Public Sector lost 8,000. Employment by the Federal Government fell 8,000 during April and since peaking in October 2024 has contracted by 348,000. The Unemployment Rate remained unchanged at 4.3%. The Unemployment Rate had gotten as low as 3.4% in April 2023. The Labor Force Participation Rate remained at 61.9% during April, its lowest level since November 2021. Average Hourly Earnings rose 0.16% or $0.06 to $37.41 during April from $37.35 one month prior and by $1.29 or 3.59% from $36.12 y/y. Average Weekly Earnings rose 0.45% or $5.79 to $1,283.16 during April from $1,277.37 during March. Average Weekly Earnings over the past year have risen by $44.24 or 3.57% from $1,238.92. The manufacturing week rose to 41.5 hours from 41.4 hours April/March and as compared to 40.9 y/y. The Average Duration of Unemployment improved to 24.4 weeks in April from 25.3 weeks in March, better than the 24.9 weeks (SAAR) recorded one year ago. (Source, U.S. Department of Labor)
· Nonfarm Productivity rose by 0.8% (2.9% y/y) (SAAR) during the first quarter, down from 1.6% during the fourth. Hourly Compensation rose by 3.1% (4.2% y/y) as compared to 6.3% during Q4. Adjusted for inflation, the Real Hourly Compensation fell 0.5% (1.4% y/y) compared to 3.7% during the prior quarter. As a result, Unit Labor Costs (defined as output per hour of work and can be determined by dividing total labor costs by output) rose 2.3% (1.2% y/y) during Q1 from 4.6% during Q4. (Source, U.S. Bureau of Labor Statistics)
· The U.S. Census Bureau reported that New Single-Family Home Sales surged 48,000 during March to a Seasonally Adjusted Annualized Rate (SAAR) of 682,000 from 635,000 during February (3.3% y/y). Sales of New Homes have fallen 33.8% from their peak of 1.031 million in October 2020. However, they have risen 31.4% above their July 2022 low of 519,000. The median sales price of a new home fell 5.3% (-6.2% y/y) to $387,400, this as the average sales price of a new home fell 3.4% (-1.2% y/y) to $503,100. The average price is 7.0% below the high of $541,200 in July 2022. These sales prices are not seasonally adjusted. The number of unsold new homes on the market fell 0.4% to 481,000 as months’ supply of new homes for sale fell to 8.5 months in March from 9.1 in February as the median number of months a new home stayed on the market rose to 3.6 months during March from 3.3 during February, well off the high of 5.1 months in March 2021. (Source, U.S. Census Bureau)
· The Institute for Supply Management’s composite index of non-manufacturing (service) sector activity slipped to 53.6% during April from 54.0% in March, the twenty-second consecutive month of expansion. Of note were New Orders (53.5% v 60.6%), Employment (48.0% v 45.2%), Backlog of Orders (53.0% v 53.6%) and Business Activity (55.9% v. 53.9%). The Prices Paid Component held steady at 70.7% during April when compared to March. (Source, Institute for Supply Management)
Economic Reports scheduled to be released this week, include the following – on Monday, April Sales of Existing Homes; on Tuesday, April Retail Inflation as Measured by the Consumer Price Index (CPI); on Wednesday, April Wholesale Inflation as Measured by the Producer Price Index (PPI); on Thursday, Initial Claims for Unemployment Benefits, April Retail Sales and March Business Inventories; and, on Friday, April Industrial Production along with April Capacity Utilization.
Several potentially market moving companies are scheduled to report earnings, to include Petroleo Brasileiro (PBR), Constellation Energy ((CEG), Barrick Mining (B), SoftBank Group (SFTBY), Cisco Systems (CSCO), Applied Materials (AMAT), Ross Stores (ROST) and National Grid (NGG).