Macro-View:

Our long-term horizon indicators for U.S. Equities (comparative measurements over a rolling one-year timeframe) show that we entered a new Cyclical Bear on March 4, 2022.

Micro-View:

None of our indicators are Positive. Regardless of timeframe, from short-term to very long-term, all our indictors show negative for market exposure.

In the markets:

U.S. Markets: The major U.S. equity indexes ended the week lower with particularly steep losses on Friday.  The Russell 1000 Growth Index stocks gave up more ground than their Value counterparts, while the large cap S&P 500 Index posted steeper losses than its smaller-cap brethren.  The Dow Jones Industrial Average shed 640 points this week, closing at 33,811—a decline of -1.9%.  The technology-heavy NASDAQ Composite declined for a third consecutive week falling ‑3.8%.  By market cap, the S&P 500 ended down -2.8%, while the midcap S&P 400 gave up -1.7% and the small cap Russell 2000 ended the week down -3.2%.

International Markets:  Major international markets finished the week to the downside as well.  Canada’s TSX retreated ‑3.1%, while the United Kingdom’s FTSE 100 gave up -1.2%.  On Europe’s mainland, France’s CAC 40 ticked down just -0.1%, while Germany slipped -0.2%.  In Asia, China’s Shanghai Composite fell a third week, ending down ‑4.3% and Japan’s Nikkei fell -0.2%.  As grouped by Morgan Stanley Capital International, developed markets ended down -2.2% and emerging markets dropped -4.2%.

Commodities:  Major commodities also ended the week down.  Energy was hit particularly hard following weeks of gains.  West Texas Intermediate crude oil declined -4.6% to $102.07 per barrel.  Brent crude shed -4.8% to $105.72.  Precious metals were also under pressure.  Gold gave up -2.1% to $1934.40 per ounce, while Silver retreated -5.6% to $24.26.  The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, ended the week down -3%.

U.S. Economic News:  The number of Americans filing first-time unemployment claims dipped last week, remaining near a 54-year low.  The Labor Department reported that initial jobless claims fell by 2,000 to 184,000 reflecting the tight labor market in which work is easy to find and layoffs are at record lows.  Economists had expected claims to total 182,000.  New jobless claims have totaled fewer than 200,000 in 10 of the past 11 weeks and recently touched the lowest level since 1968.  Meanwhile, continuing claims, which count the number of people already receiving unemployment benefits, declined by 58,000 to 1.42 million.  That reading is the lowest since 1970.  Thomas Simons, money market economist at Jefferies LLC stated, “Demand for labor is strong and there are no reasons to believe that this will change any time soon.”

Sales of existing homes fell for a second consecutive month as mortgage rates continue to rise.  The National Association of Realtors (NAR) reported existing home sales decreased 2.7% in March, dropping to a seasonally-adjusted annual rate of 5.77 million.  With rates rising, and prices significantly higher, the average borrower is paying about 38% more on the monthly payment now than they would have for the same home one year ago, according to Realtor.com.  Compared to the same time last year, sales were down 4.5%.  The median price of an existing home sold in March was $375,300—an increase of 15% from March 2021.  That was the highest median existing home price ever recorded by the NAR.  At the end of March there were 950,000 homes for sale—a decrease of 9.5% year over year.  At the current sales rate that represents just a two-month supply of homes for sale.  Analysts generally consider a six-month supply of homes a ‘balanced’ housing market.

The confidence of the nation’s home builders fell again, primarily due to a drop in the underlying index that measures prospective buyer traffic.  The National Association of Home Builders (NAHB) reported its monthly confidence index fell two points from the previous month to 77 in April.  The index remains at its lowest level since September.  Still, readings above 50 indicate that more home builders believe that conditions are good rather than poor.  The last time the index dropped below 50 was back in April of 2020—at the start of the COVID-19 pandemic.  A separate survey from BTIG and HomeSphere found that 42% of home builders believe that interest rates are negatively affecting their business, up from less than 22% in January.  Nevertheless, the survey still found that sales were up in March for small- and mid-sized home builders, and most had raised prices.  Robert Dietz, chief economist for the NAHB, said in the report, “The housing market faces an inflection point as an unexpectedly quick rise in interest rates, rising home prices and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market.”

A pair of “flash” or preliminary surveys by S&P showed high inflation is sapping the U.S. economy as consumers are balking at higher prices.  S&P’s flash U.S. services index fell this month to a three-month low of 54.7, erasing a sizeable gain from the prior month.  Meanwhile, its flash index for the manufacturing sector edged up to a seven-month high of 59.7.  Prices rose at the fastest pace on record.  As a result, S&P found, it “dampened customer demand.”  With numbers over 50 signaling growth, the headline numbers appear positive.  However, the details of the survey showed widespread worries over inflation and ongoing shortages of supplies and labor.  Executives are worried about the future, especially with the Federal Reserve now hiking interest rates.

The U.S. economy continued to expand at a “moderate” pace through the beginning of April, but high inflation showed little sign of letting up in “the coming months”, according to a Federal Reserve survey.  The survey, known as the ‘Beige Book’, is a collection of anecdotal reports from each of Federal Reserve’s regional banks, found little evidence inflation is set to turn sharply lower.  Businesses reported being forced to pay higher wages due to a tight labor market, continued supply-chain bottlenecks, and rising prices for just about everything.  “Firms in most Districts expected inflationary pressures to continue over the coming months,” the Beige Book said.  Notably, there was hardly any talk of the threat of a recession.  Only one business person surveyed mentioned the possibility.

Sources:  All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat,0020Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.

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