Stocks Hold Firm
Stocks traded most of last week around the flatline as investors grappled with several headwinds.
The first was disappointing earnings results, coupled with the absence of earnings guidance from some companies due to an uncertain economic climate. Weak economic data, including declines in housing and leading economic indicators, also weighed on investor sentiment. Finally, multiple Fed officials spoke last week, signaling that inflation remained too high and that further rate hikes may be likely.
Underneath the seemingly placid surface of the major market indices, there was substantial price action at the individual stock and sector level. Poor earnings results hit communication services stocks and regional banks, while margin pressures put pressure on auto stock valuations.
Domestically, small-cap (+0.59%) and mid-cap (+0.25%) stocks improved more than large caps.
Emerging markets were the worst performing group, falling -1.95% on the week.
Bonds, both domestic and global, were negative on the week. The Bloomberg U.S. and Global Aggregate Bond Indices returned -0.23 % and -0.51%, respectively. The Bloomberg U.S. Corporate High Yield TR USD dipped -0.33%.
China’s Economy Rebounds After Three Years of Zero-Covid Isolation: China’s economy rebounded in the first three months of the year after Beijing dismantled its heavy-handed Covid-19 controls, teeing up a revival in growth that is expected to buoy the global economy as the U.S. and European economies slow. China’s economy expanded 4.5% in the first quarter of the year compared with the same three months a year earlier, China’s National Bureau of Statistics said Tuesday, a better performance than the 4.0% pace expected by economists polled by The Wall Street Journal. Compared with the previous quarter, when China was hit by a wave of Covid infections after the abrupt end to its zero-tolerance Covid policies in December, the economy expanded 2.2%. Growth was driven by Chinese consumers, who began shopping, eating out and traveling again after almost three years of stringent restrictions on daily life, data showed. The economy also benefited from government investment in infrastructure and a surprise pickup in exports in March.2
Chile’s White Gold Rush: Chile’s left-wing government is moving to exert more state control over one of the country’s most valuable natural resources. Chilean President Gabriel Boric announced on Thursday that he will nationalize the country’s lithium industry to boost the economy and protect biodiversity. Chile is the second-largest producer in the world of the lucrative metal, also known as white gold, which is critical for producing the batteries used in electric vehicles and other clean energy technologies. According to the World Bank, lithium demand is expected to explode in the coming decades. Economists predict that production must increase by more than 450 percent by 2050 to accommodate skyrocketing need.3
Reprinted with permission from BTN. Copyright © 2023 Michael A. Higley.
1. Data Obtained from Morningstar as of 4/21/2023
Federal Reserve (Fed): The Federal Reserve System is the central banking system of the United States of America.
Empire State Manufacturing Index: The Empire State Manufacturing Survey/Index tracks the sentiment of New York State manufacturing executives regarding business conditions.
Building Permits: This concept tracks the number of permits issued for new construction, additions to pre-existing structures or major renovations. These statistics are based on the number of construction permits approved.
Housing Starts: Housing (or building) starts track the number of new housing units (or buildings) that have been started during the reference period.
Beige Book: The Beige Book is a summary and analysis of economic activity and conditions, prepared with the aid of reports from the district Federal Reserve Banks and issued by the central bank of the Federal Reserve for its policy makers before a Federal Open Market Committee meeting.
GDP: Gross domestic product (GDP) measures the final market value of all goods and services produced within a country. It is the most frequently used indicator of economic activity. The GDP by expenditure approach measures total final expenditures (at purchasers' prices), including exports less imports. This concept is adjusted for inflation.
PCE (headline and core): PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.
Personal Income: Consumer or Household Income (often referred to as personal income) tracks all income received by households including such things as wages and salaries, investment income, rental income, transfer payments, etc. This concept is not adjusted for inflation.
Personal Spending: Consumer or Household Spending (also referred to as consumption) tracks consumer expenditures on goods and services. This concept is not adjusted for inflation.
The Conference Board Leading Economic Index® (LEI) for the U.S.: The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component. The LEI is a predictive variable that anticipates (or “leads”) turning points in the business cycle by around 7 months.
S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.
Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.
MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.
MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
Bloomberg Barclays U.S. Agg Bond: The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
Bloomberg Barclays High Yield Corp: The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.
Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
Bloomberg Barclays Municipal Bond Index: The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.
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4/21 Market View Weekly: By the Numbers
April 24, 2023