Weekly Market Update: Roller Coaster Month Ends with a Sigh of Relief

Stock Market and Economy Roundup

U.S. equities recovered from the hit to investor sentiment posed by the banking sector troubles. However, not everyone got to the punch bowl. Technology and Communication Services rallied strongly; Consumer Goods and Utilities scraped the zero line from above; Industrials, Materials, Real Estate, and Energy finished in the red – and Financials, naturally, tumbled. Within the sectors, there were winners and losers, with one of the clear partition lines drawn between the different market caps: while large-caps mostly rose for the month, small-caps bore the brunt of darkening economic outlook. Still, there were also winners within the Russell 2000 index of small-cap stocks across all sectors. With this level of market turbulence, investors are advised to take precautions and base their decisions on trustworthy data and analysis.

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Equities – Weekly Performance

All U.S. sectors except Communication Services were up for the week; there were only a handful of stocks finishing the week in the red. The decline in Communications was caused almost solely by Alphabet (GOOGL), who suffered a setback in India’s antitrust court and now has to pay a fine of $160 million – not a large sum for the technology giant, and more of a sentiment hit than a lesion.

The main reason for the equity markets’ feeling of bliss was February’s reading on the Fed’s preferred inflation gauge, personal consumption expenditures (PCE), which declined more than expected. The easing of the PCE from the previous months fits the narrative of the Fed’s measures having their desired effect on prices. Of course, the fact that nothing bad happened to banks last week caused a huge sigh of relief and a cautious belief that the crisis in financials is over.

Following the decline in the inflation indicators, market participants began to dial down their expectations for the Federal Reserve’s peak interest rates. However, FOMC’s governors continue to insist that there’s still much work to be done to restore price stability.

Besides, the banking drama has subsided – but the dangers are still lurking around regional lenders. Savers, spooked by the collapse of SVB and Signature Bank, are looking for safer, bigger alternatives – and those that remain with the smaller lenders demand high interest on deposits. Besides, the banks have to compete with the Money Market Funds, the safest short-term investing instrument that now, thanks to the Fed’s hikes, can offer decent returns, posing a great alternative for the risk-averse bank customers. Competing with financial giants and the MMFs will squash regional banks’ profit margins, leading to stock declines. On the other hand, an inability to compete will drive away deposits, again weighing on the banks’ stocks. This impasse doesn’t seem likely to be resolved any time soon.  

There is another rationale for investors to remain cautious. Looking at  U.S. stock performance during the past month as well as the past quarter, one can notice the extreme narrowness of the rally, concentrating within a limited number of stocks – mostly mega- and large-caps in IT, Communications and Consumer Cyclical sectors, such as Microsoft (MSFT), Apple (AAPL), Alphabet (GOOGL), Meta (META), Amazon (AMZN), NVIDIA (NVDA), Broadcom (AVGO), and Tesla (TSLA). Very narrow rallies are a sign of a low market confidence; gains led by a limited number of stocks are easily reversed on any sign of trouble – which we expect to see in abundance as the risk of a recession is nowhere near diminished.   

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Major Economic Events of the Past Week

U.S.

January’s S&P/Case-Shiller Home Price Indices rose 2.5% year-on-year, in line with expectations, versus December’s +4.6%.

March’s CB Consumer Confidence Index increased to 104.2 from February’s level of 103.4, defying the expectations of a decline to 101. The increase points at a rise in consumer spending in the near term. Q4 2022 GDP Growth Annualized (final reading) was 2.6%, lower than the previous estimate of 2.7% and down from Q3’s 3.2%.

February’s Core Personal Consumption Expenditures (Core PCE) rose 0.3% month-on-month versus estimates of a 0.4% increase and down from January’s 0.5%. Year-on-year, the Fed’s preferred inflation gauge increased 4.6%, its smallest increase since October 2021.

February’s Personal Income rose 0.3% from January’s 0.6%, higher than the expected 0.2% increase. Personal Spending inched up 0.2%, much weaker than January’s +2% and less than was expected (0.3%).

March’s Chicago PMI rose to 43.8 from February’s 43.6, pointing to slower contraction in the manufacturing industry.

March’s Michigan Consumer Sentiment Index came in at 62 versus the expected 63.2 and down from February’s 63.4.

Initial Jobless Claims for the week ending March 24^th came in at 198K versus the expected 196K. Continuing Jobless Claims for the week ending March 18^th were at 1.689M, lower than the expected 1.697M.

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Eurozone

March’s Consumer Confidence remained unchanged from February’s level of -19.2, in line with expectations.

February’s Unemployment Rate was unchanged from January’s 6.6%, versus the expectations of an increase to 6.7%.

March’s Preliminary CPI rose 0.9% month-on-month from February’s +0.8%, versus the expected +0.8%. Year-on-year, inflation in the Eurozone declined to 6.9%, lower than the expected reading of 7.1% and less than February’s 8.5% increase. However, Core CPI surged 1.2% month-on-month from February’s +0.8% and was higher year-on-year than in the previous month, 5.7% versus February’s 5.6%. This datapoint reflects the fact that the decline in headline numbers was led by seasonal factors such as falling prices of energy.

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Japan

February’s Unemployment Rate unexpectedly rose to 2.6% from January’s 2.4%; economists forecasted no change.

February’s Retail Sales jumped 6.6% year-on-year from January’s 5%.

February’s Industrial Production (preliminary) surged 4.5% year-on-year from January’s -5.3%, versus the expectations of a 2.7% increase.

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China

March’s Manufacturing PMI (official figures)declined to 51.9 from February’s 52.6. Services PMI (official figures)rose to 58.2 from February’s 56.3. The figures point to expansion in both sectors of the Chinese economy, with growth in the Manufacturing sector slowing, and in the Services, accelerating.

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Stock Highlights of the Past Week

This past week the markets reacted to a number of earnings reports, with the most prominent of them being, of course, Micron.Micron (MU) stock jumped after its earnings report despite underwhelming results which included lower-than-expected sales, revenue, and earnings. MU rose on the management’s rosy outlook for Q2 2023. Analysts brushed off the earnings miss, confirming the management’s forecast and lifting price targets. However, shares slipped on the week after Chinese regulators launched a probe, citing cybersecurity concerns.  

~ Walgreens Boots Alliance (WBA) reported earnings beat for the last quarter. The stock jumped 4.5% for the week.

~ Cintas (CTAS) surpassed analysts’ revenue and earnings forecasts and lifted targets for this fiscal year. Analysts raised price targets in droves, and the stock rose 5.2% for the week.

~ Verint Systems (VRNT) stock also jumped on the week after revenue and EPS beat and outlook for Q1 that matched analysts’ consensus.

~ Lululemon Athletica (LULU) reported for Q4 2022. Sales, revenues, and earnings beat analysts’ estimates; management forecast higher revenues and earnings in Q1 2023 than currently anticipated by Wall Street. Analysts’ raised price targets; however, Jefferies warned about ongoing concerns with regards to tougher competition and a worsening consumer environment. LULU stock surged 16% on the week.

~ Our Star of the Week is Intel (INTC) which surged 11.2% in 5 trading days and logged its best month in two decades in March with a 29% rise. Intel, one of the world’s largest semiconductor chip manufacturers, which has been in operation since 1968, rolled out a lot of good news recently. The company displayed its new chips, which will give it an edge over its competitors, and announced a timeline of future releases. INTC also revealed an outlook for its data center and AI logic silicon business, with an expected CAGR of over 20% in the next five years. Intel, as a part of the semiconductor industry, also enjoys strong tailwinds coming from a high and rising demand. That demand stems from the surge in the number of giant data centers servicing cloud-computing companies, as well as from the “need for speed” posed by the growth of AI technology.

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Upcoming Economic Calendar Events

This week we’ll see published a number of very important reports, in both the U.S. and global markets.

On Monday, there will be reports on March’s S&P/Markit Manufacturing PMI. On Tuesday, we’ll get a reading on February’s Factory Orders. On Wednesday, the main news will be March’s S&P/Markit Services PMI. Finally, on Friday, we’ll receive readings of March’s Unemployment Rate, Non-Farm Payrolls, Labor Force Participation, Average Hourly Earnings and Average Weekly Hours.

Elsewhere, this week we’ll get reports on Japan’s Overall Household Spending, reflecting the country’s level of consumer optimism. Canada will report on the situation with its Unemployment Rate as well as its Manufacturing PMI. The U.K. will also report on its Manufacturing PMI. And, finally, Markit Economics will publish its China’s Caixin Manufacturing and Services PMI.   

Current and scheduled economic reports, Fed statements, and other releases, as well as their level of impact on stock markets, can be found on the TipRanks Economic Calendar.

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Upcoming Earnings and Dividend Announcements

Companies releasing earnings reports this week include Acuity Brands (AYI), Conagra Brands (CAG), Constellation Brands (STZ), Levi Strauss & Co (LEVI), and some more.

The Q4 2023 reporting season is over; Q1 2023 season will begin in about two weeks with the banks and other financials. Banks’ reports will be the center of everyone’s attention, given recent volatility in that area. Due to the banking drama, many lenders are oversold; however, continued pressure on regional lenders’ margins calls for further caution in the short term. As for the S&P 500 overall, forward earnings estimates are expected to be revised lower, as currently they don’t match the economic outlook.

Companies’ reporting dates, consensus EPS forecasts and past data, together with their analyst ratings and price targets, can be found on the TipRanks Earnings Calendar.

This week’s Ex-Dividend dates are coming for the payouts of Cisco Systems (CSCO), Comcast (CMCSA), Gap (GPS), ZIM Integrated Shipping Services (ZIM), American Express (AXP), Campbell Soup (CPB), JPMorgan Chase & Co. (JPM), Mastercard (MA), and other dividend-paying firms.  

Companies’ Ex- and Payment dates, together with their analyst ratings and price targets, can be found on the TipRanks Dividend Calendar.