Weekly Recap:

by Eric Criscuolo

Last week was filled with violent moves across assets. Somehow, the S&P actually gained 6%. Most of that was due to a huge 10% rally last Wednesday after the tariff pause, but stocks also finished higher on Friday, rallying from their lows. That set up this week, with markets on the lookout for follow-on tariff news as well as the ramping up of earnings season. In the end, large caps traded lower; the S&P 500 lost 1.5% and the Dow fell 2.7%. However, the Russell 2000 outperformed, up 1%. A lot of the Dow's underperformance came from UnitedHealth's steep drop following earnings on Thursday (being a price weighted index). The Russell was helped in part by strong performance in small cap biotech.

The S&P traded in an average daily range of 7% last week, including days of 11% and 9%. Huge ranges. Compared to those moves, equities were in a zen-like trance this week. The S&P's daily range was 1-3%. The shock from the initial tariff announcements had worked its way through the market. The tariff pauses provided some sense of relief. The initial announcements at the beginning of the month were like a naval bombardment before an amphibious landing. The more recent news flow was like a strafing run. Follow-on measures were not as shocking. Like Linkin Park, I've become so numb to another 100% tariff on China. That's not exactly true; the market is searching for off-ramps and still lurches on "Breaking News" that's not really filled with a lot of news, but the general level of frenziness is lower than last week. Also Linkin Park wouldn't sing about tariffs.

As far as sectors, Real Estate, Energy and Utilities were the leaders as rates moved lower and Brent crude continued to move higher on geopolitical concerns. Consumer Staples were also a strong sector, led by retailers and tobacco.

On the downside, Tech was a notable laggard, in particular the semi names. Nvidia got hammered, down 9% on the week after the US announced additional export controls to China for its H20 chip. This is the chip that the company made specifically to comply with earlier sales restrictions to China. The rest of the group traded down with it. Discretionary saw weakness in some of the bigger restaurant, travel and retail names.    

Since trade continues to be the major overhang for markets, here's a snapshot of the recent headlines:

T&E. Not Travel and Expenses, but Tariffs and Earnings. The focus for investors right now. We're in the early innings of Q1 earnings with a lot of financials so far. According to John Butters and FactSet, about 12% of the companies in the S&P 500 have reported. 71% have beat EPS estimates, but that's below the 5-year average of 77% and the 10-year average of 75%. Bottom line beats by the Financial sector are being offset by downward EPS revisions in tech. The banks have generally had solid reports, with higher credit provisions but nothing that really screams concern. So far, maintaining guidance rather than cutting guidance seems to be the action most taken.   

Some of the non-financial results:

Treasuries were firmer for the week, sending yields lower after they exploded higher last week. The 2-year fell 18bp and the 10-year 16 bp, but the 30-year only fell only 5bp. The ICE MOVE index, measuring bond volatility, has fallen from a high of 140 on 4/8 to 115, around where it was trading on March 10.

Market odds for a Fed rate rate cut in May have fallen to below 10%. They were at 20% last Friday, and got near 50% at one point earlier last week.  A June cut is at 60% probability (35% no cut). Last Tuesday markets had fully priced in 1.5 cuts by June.  About 3.5 cuts are priced in for the rest of the year, back to around where expectations were a month ago.

After widening last week the 10-year/2-year spread was relatively stable.

The Dollar continued its slide this week. It's been more like a BASE jump, actually. After two weeks of rapid deprecation, however, the FX moves were much more subdued this week, like the parachute was finally pulled. After briefly breaking out of a 2-year range of 100-107 late last year, the US Dollar Index has fallen from a high ~110 in mid-January and broke below the low-end of that two year range, to 99.  

Global markets - Broadly higher. Chinese economic numbers better than expected along with supportive action by government in the markets.

Commodities - Crude and Copper continue to bounce from recent sell-off.   

The biggest news this week that reaches across economics, government and policy centered on the Fed.  But not rate cuts or bank reserve levels. President Trump igniting a smoldering issue by posting on social media about his desire/ability to remove Federal Reserve Chairman Jerome Powell from his position. He lambasted Powell and the Fed for not cutting rates yet, like Europe is doing. The WSJ, The Hill and other news organizations came out with stories discussing how Trump has talked for months about firing Powell and the White House is assessing ways fire Powell. I find it amusing that at his speech this week Powell said it was the greatest job in government.

Which brings up to said speech and interview on Wednesday. This one caused the S&P 500 to fall about 2% after it was deemed hawkish.  While he stressed the need to keep inflation and especially expectations well-anchored, even at the risk of growth and unemployment, it wasn't completely out nowhere. He also said there was no Fed Put (with an explanation), which he pretty much has to say. The market reaction seemed like a knee-jerk response because it was hoping for something more soothing after weeks of chaotic headlines. The market recouped the move over the next day and a half.   

SF Fed President Mary Daly spoke on Friday, saying she had not heard of businesses making layoffs or pulling back yet, and that the Fed has time to evaluate things and is no rush. Like Powell, she noted inflation risks have increased and that policy may need to be tighter for longer, but also that cuts could be fewer, or more than, two this year (the median dot plot) depending on how the economy evolves. Meanwhile on Monday, Fed Governor Waller's comments seemed to take the opposite position from Powell, with, for him, the risk of recession outweighing the risk of escalating inflation, in his opinion.  

Moving to economic data, it was relatively light this week.  Retail sales for March were strong, thanks to a big jump in autos. The ECB cut its policy rate as expected and made Trump yell at Powell. Jobless claims were on-trend, continuing to show a strong but easing labor market. The data also moved into AT- our After Tariff timeframe. Housing starts missed consensus and declined 11% m/m, with single-unit starts down 14%. The Philly Fed index disappointed, with Current Business Conditions plummeting 39 points to -26.4, while New Orders fell to the lowest reading since April 2020. The Empire State Manufacturing index beat consensus but forward-looking measures fell to their second-lowest reading in the 20+ year history of the survey.  Inflation expectations in the NY Fed's Survey of Consumer Expectations fell into the "well-anchored" basket.

High yield spreads have tightened from their jump higher on the initial news on Tariff Day. They're still elevated versus the past year and half. Corporate spreads have remained stable since moving modestly higher on the tariff news.

Earnings. Lots of earnings. We'll start to see other sectors represented more compared to the financials that take up most of the early part of the cycle. Flash PMIs for April will be highly followed as well. These will incorporate survey responses from April, so one of our first looks at a major piece of macro data after the tariff announcement on April 2. The IMF and World Bank Spring meetings will start April 21, providing fertile ground for a lot more tariff and trade headlines.

By submitting this form you hereby expressly grant permission to use the information included thereunder to contact you for the purposes of sending periodic updates about ICE and/or its affiliates. Certain indices mentioned above are administered by ICE Data Indices, LLC.

Your contact information will not be used for any purpose other than that for which your consent has been given. To learn more about our privacy policy, please click here.

© 2024 Intercontinental Exchange, Inc.  All rights reserved. Intercontinental Exchange and ICE are trademarks of Intercontinental Exchange, Inc. or its affiliates. For more information regarding registered trademarks, limitations, restrictions, and other important information, please visit intercontinentalexchange.com/terms-of-use.