Morning Market Feed May 13th
As the consumer sentiment numbers were released after the markets opened on Friday, the markets followed the same direction, down. Let’s dive into some market news and how I expect this new wave of bearishness to continue in the markets.
S&P500 0.13% | Dow Jones 0.30% | Nasdaq 0.24% | Russell2000 -0.75% | 10-Year yield 4.50%
(Index changes as of May 10th close)
- Let’s not get to sentimental
The consumer data release missed the mark by quite a bit, as this number came in at 67.4 whilst analysts expected 76.
The numbers themselves sound quite meaningless or empty, but these numbers tell us that people have become far less optimistic about the economy as inflation frustration starts to upset the surveyed. The previous survey came in at 79.4 and this newest result is equal to September ‘23 when markets tanked until the end of November.
Not too great when looking at it this way, but if CPI were to come in soft on Wednesday, sentiment should come around quite quickly as this is what the decrease of sentiment is based on.
Source 1: Surveys of Consumers (umich.edu)
Source 2: University of Michigan: Consumer Sentiment (UMCSENT) | FRED | St. Louis Fed (stlouisfed.org)
Expected unemployment, dotted line actual number, line representing 3-month average
Consumer Sentiment numbers reported in Michigan Consumer Sentiment survey
- Tesla is buying customers
As interest rates keep being tough on Tesla, and the bad news cycle is reshaping after the earnings that were seen as a positive spin, Tesla’s latest incentive to create demand is basically buying them for the Model Y. The company is now offering internal interest rates of 0.99%, compared to a previous 6.49%. Having this lower interest rate is good for the buyer, it can help to push towards growth of volumes again, but Tesla is paying for it. This deal is only on the Tesla Model Y, after a downpayment of $4.250
Source Tesla Just Offered a New Deal on Its Model Y - Barron's (barrons.com)
- How can you justify being a bear?
Of course, being a bear isn’t what is paying of in the long term, but sometimes it’s good to be slightly bearish for a small period of time. Currently, there are some arguments that could be seen as a reason to be on the bear side. The main argument is that CPI refuses to come down, as the first three CPI releases have not been very good, and pointing towards a sticky inflation problem.
Another argument that added fuel to the bear argument is the sudden drop in non-farm payrolls. All jobs data releases pointed towards a better-than-expected jobs market, until we saw a crack in the most recent JOLTs data, with job openings coming down to the lowest level since February 2021, but still at levels never seen before the Covid pandemic. The recent data first mentioned for this argument, the non-farm payrolls, came in 175.000, where the creation of 240.000 jobs was expected. A significant miss.
Finally, we have the 10-year interest rate. As bond yields stay elevated, this is seen as a headwind for equities and although we have been coming down from recent highs, the 10-year is still very elevated when compared to recent history. The trend in this chart is also not your friend when hoping for a more favourable environment for stocks as can been seen in the picture below.
10-year govenment bond yield
Source 1: Job Openings: Total Nonfarm (JTSJOL) | FRED | St. Louis Fed (stlouisfed.org)
Source 2: Jobs report April 2024: U.S. job growth totaled 175,000 in April (cnbc.com)
- So what comes next?
Next, we will be looking for market catalysts that are coming in the upcoming week, because there are some.
Monday:
Consumer Inflation Expectation Survey, this number comes from a survey and has been coming down from 3.7% in October, to 3% in the April release. It is a 1-year forward looking number.
Tuesday:
PPI numbers, and FED Powell speech. The latter being very closely watched due to the tsunami of data coming Wednesday.
Wednesday:
CPI Data, Retail Sales, Business Inventories, FED Kashkari, and Bowman speeches.
CPI is expected to come in at 0.3% MoM, and 3.4% YoY. (Prior 0.4% MoM, 3.5% YoY)
Core CPI is expected at 0.3% MoM, 3.6% YoY. (Prior 0.4% MoM, 3.8% YoY)
Last CPI release was mostly concerning around Super Core as this was near levels seen in the period when the FED started ramping interest rates.
Thursday:
Building Permits (preliminary), Export/Import Prices, Housing Starts, (Continuing) Jobless Claims, FED Speeches: Barr, Harker, Mester, Bostic.
Friday:
Fed Waller Speech.
Plenty of market action this week which may set a course for the coming weeks to either continue pushing the S&P to new highs, or to support the growing bearish concerns. We will see what happens and see what the data will look like.
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