by Bryan Perry
May 2, 2023
Friday’s strong stand helped close the month of April on a positive note, but that pop in the major averages mostly came courtesy of FAANG stocks, since the S&P and Nasdaq are where these stocks are heavily weighted. Aside from mega-cap tech, consumer staples and energy also put in a strong showing.
Year-to-date through April 28, 2023, of the 11 market sectors, the divisions are wide: According to yahoo finance, Consumer discretionary (XLY) is up 14.83%, but healthcare is down -1.43%; technology (XLK) is up 21.47%, but industrials (XLI) are up only 2.23%; communication services are up 25.16%, but energy (XLE) is off by -1.64%; broad financials (XLF) are down -2.54% and utilities are off by -1.44%. In the middle are consumer staples (XLP), higher by 4.37%, materials (XLB), up 4.14%, and real estate (XLRE), up 2.94%. Due to headline troubles in the bank sector (KBE), it is down by -18.27%, and the regional bank sector has been crushed by -29.11%.
For 2023 so far, NASDAQ has led the way on the back of a few high-tech draft horses and some other individual standouts. However, there was a much-needed positive development when the market broadened out nicely late last week. On Friday, advancers led decliners by an 8-to-3 margin at the NYSE and a nearly 2-to-1 margin at the Nasdaq. Here is this year’s four-month total for five major indexes:
- Nasdaq Composite: +16.8% (YTD)
- S&P 500: +8.6%
- Dow Jones Industrials: +2.9%
- S&P Midcap 400: +2.5%
- Russell 2000: +0.4%
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Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Falling market rates were another supportive factor for equities last week as the 2-year Treasury note yield fell to 4.06% and the 10-year note yield fell to 3.45%. If nascent market breadth can build on itself, then the S&P has a real shot at breaking above key overhead resistance at 4,200 – which has proved to be a good place to fade rallies. The market has priced in another quarter-point hike to be announced this Wednesday, with the hope of a policy statement that hints of a pause of further rate hikes in June and July.
The data that the Fed takes into account in its monetary policy decisions definitely points to another rate hike. The March core Personal Consumption Expenditures (PCE) Price Index rose 4.6% from last year, down from the revised 4.7% recorded in February, but it came in higher than the analysts’ consensus forecast of 4.5%. The core index was up 0.3% on the month, the Bureau of Economic Analysis reported, matching both last month’s pace and the analysts’ forecast. A separate report from the Labor Department showed that its closely tracked employment cost index rose 1.2% over the first quarter, higher than analysts’ 1.1% forecast. Private-employer wages were up 5.1% in March (source: www.thestreet.com).
As for future rate hikes, Elon Musk jumped on a Twitter thread initiated by Harvard economist Larry Summers, who predicted a “severe recession” if the Fed keeps raising rates. On Sunday, Musk countered that, “A mild recession is already here,” and Musk claims to have as much real-time data on the present condition of the economy as anyone, with the various businesses he oversees.
Larry Summers is someone people listen to carefully, but the same could be said of Elon Musk. Both are superstars in their own spaces, and yet while Summers warns of the Fed doing more to contain inflation, Musk raises the caution flag, asking the Fed to let the many hikes in place have time to work through the economy. The economy is learning how to live with 4%-5% inflation. After all, the past decade was one of artificially low rates, and now the world of lending is in the process of normalizing, in my view.
The debate continues to elevate between the critics of the Fed and those who believe that the current rise in prices for goods and services warrants further hikes. On that front, Markit Economics writes:
“The S&P Global US Manufacturing PMI increased to 50.4 in April 2023 from 49.2 in March, beating forecasts of 49, and pointed to the first expansion in factory activity in six months… Production levels at manufacturers rose modestly in April, albeit at the fastest rate since May 2022 due to increased employment and a return to new order growth. New sales rose for the first time in six months and the rate of job creation accelerated to the fastest since September 2022.”
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
How the Fed threads their policy statement will weigh large on the near-term direction for the market as a whole, but again, this is a market of stocks, and there are selective and stealth bull markets within dozens of indivuals stocks that are hitting new 52-week highs and all-time highs. It’s been a stellar first four months for the tech sector. Now if the Fed can give its soon to be 11 rate hikes a chance to have their full impact on inflation, the S&P can finally break out of its range, because it certainly acts like it wants to.
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
GDP Rose 1.1% in Q1; Can We Dodge a Recession?
Income Mail by Bryan Perry
The Market May Enjoy “Spring Fever” With a Positive Fed Policy Statement
Growth Mail by Gary Alexander
A Tale of Two Centuries: Growth (1950-99) vs. Debt (2000-23)
Global Mail by Ivan Martchev
Market Advances on Poor Breadth
Sector Spotlight by Jason Bodner
Tech is Back in Fashion – Will That Continue?
View Full Archive
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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