5/19/2023 4:03:53 PM
Major indices opened lower this week after US Empire Manufacturing saw the largest month over month decline since the 2020 pandemic. Hard landing worries persisted along with real concerns about a potential US debt default. US House Speaker McCarthy reiterated debt ceiling negotiators were still far apart while President Biden was set to leave for the G-7 in Japan with the clock ticking. On Tuesday US advanced retail sales missed on the headline but the control group surpassed market expectations. Importantly interest rates commenced what would be a notable move higher in the wake of Canada’s CPI data. Canada’s much hotter than expected inflation print (the first acceleration in 10-months) may have taken on more significance in some investor’s minds after the Bank of Canada paused their rate hiking cycle earlier this spring. By midweek the tone on the debt ceiling negotiations took on a significantly more constructive turn in tone, after President Biden appointed two of his most trusted and experienced aids to take the lead in talks with the Republicans and House leader McCarthy. Stocks surged led by the NASDAQ and risk on trade momentum picked up. Gold rolled over the US dollar rose in reaction to jump in US Treasury yields. By Friday US yields reached the highest levels since SVB collapsed in March. Market expectations for an additional Fed hike started to creep in as recession worries faded and Fed hawks like President Logan were vocal, when she noted she doesn’t necessarily see the case for a Fed pause yet.
On Friday Chairman Powell struck a ball that that appeared to be right down the middle in terms of what we recently heard from his colleagues. In a short panel appearance he largely reiterated the message provided at the FOMC press conference earlier this month. His commentary was overshadowed by news out of Washington that the debt talks had broken off. Mccarthy’s team walked out calling White House demands unreasonable while reports noted it was not just one issue, but several that have remained problematic. Finger pointing quickly ensued from both the GOP and White House, and no additional talks were expected on Friday. Stocks rolled into the red mid-session and yields moved off the highs while gold prices recouped some of the week’s losses. US T-bill yields remained above 5% all the way out to the 1-year note. For the week the S&P added 1.7%, Dow gains 0.4%, and the NASDAQ jumed 3%.
A weak earnings report from Home Depot kicked off the retail portion of earnings season potentially fanning lingering hard landing worries. Targets Inc Q1 earnings were better than expected but, Q2 and FY guidance was notably conservative. Management acknowledged the softer sales trends experienced in Q1 continued into May which was a narrative repeated on other earnings conference calls throughout the week. Walmart’s strong Q1 results and raised guidance definitely allayed some of the ongoing growth concerns. Western Alliance Bancorp surged after the bank noted total deposits rose in the last week buoying the entire regional bank complex mid-week. Cisco reported better-than-expected earnings and sales results for its third quarter but initial stock weakness was attributed to worries about waning order growth. Deere reported exceptionally strong results and significantly raised their FY forecast for profits. Netflix was the poster child for strength in the NASDAQ 100 which surged to a fresh 52-highs. The streaming behemoth noted that their ad tier service now has more than 5M monthly users.