Nowhere to Hide When the Bear Turns Grizzly!

Macro View:

None of our indicators which monitor a multitude of timeframes ranging from solely days/weeks; monthly+; quarterly; and years-long; show we should be currently invested in U.S. Equities.


U.S. Markets: The major U.S. market indexes endured a fourth consecutive week of losses as fears of slowing growth were compounded by disappointing earnings from some market heavyweights like Amazon.  The benchmark S&P 500 index fell further into correction territory, now down about 14% from its recent peak, while the technology-heavy Nasdaq Composite and small-cap Russell 2000 Index fell further into their respective bear markets, down roughly 24% from their highs.  For the week, the Dow Jones Industrial Average shed 834 points, closing at 32,977, a decline of -2.5%.  The Nasdaq Composite declined -3.9% finishing the week at 12,335.  By market cap, the large cap S&P 500 gave up ‑3.3%, while the mid-cap S&P 400 fell -3.2%.  The small-cap Russell 2000 closed down -3.9%. 

International MarketsMost of the major international markets finished the week to the downside as well.  Canada’s TSX fell -2.0%, while the United Kingdom’s FTSE 100 rose 0.3%.  France’s CAC 40 and Germany’s DAX pulled back -0.7% and -0.3%, respectively.  In Asia, China’s Shanghai Composite retreated -1.3%.  Japan’s Nikkei declined ‑0.9%.  As grouped by Morgan Stanley Capital International, emerging markets ended the week flat.  Developed markets ended down -0.9%.

Commodities:  Precious metals failed to serve as a safe haven given the weakness in the financial markets.  Gold pulled back -1.2% to $1911.70, while Silver gave up -4.8% to $23.09.  Energy managed to buck the trend with West Texas Intermediate crude oil rising 2.6% to $104.69 per barrel, while Brent crude oil gained 0.9% to $106.67.  The industrial metal copper, viewed by some analysts as a barometer of global economic health due to its wide variety of uses, ended the week down -3.8%. 

April Summary:  April was a difficult month for the markets everywhere.  In the U.S., the Dow Jones Industrial Average finished the month down -4.9%, while the Nasdaq plunged -13.3%–its biggest monthly decline since October 2008.  Large caps shed -8.8%, while mid-caps declined -7.2% and small caps fell -10.0%.  For the month, Canada declined -5.2%, while the UK rose 0.4%.  France and Germany ended down -1.9% and -2.2%, respectively, while in Asia fell -6.3%.  Japan declined -3.5%.  Emerging markets finished the month down -6.1%.  Developed markets gave up ‑6.7%.  Gold and Silver pulled back -0.3% and -6.7%, respectively.  Oil finished the month up 0.4%.  Copper finished April down -6.8%.

U.S. Economic News:  The U.S. labor market remains extremely robust as initial claims for unemployment benefits fell again last week.  The Labor Department reported claims fell by 5,000 to just 180,000 last week.  The decline was in line with economists’ forecasts.  Claims remain near multi-decade lows at levels not seen since the early 1970’s.  Meanwhile, the number of people already collecting benefits, known as ‘continuing claims’, fell by 1,000 to 1.41 million.  That number is also at its lowest level since the early 1970’s.  Stuart Hoffman, senior economic advisor at PNC Financial Services Group noted that the labor market remains in “excellent shape”.  Economists note that any increase in claims would be a leading indicator of a slowing economy—but there are no signs of that happening now.

The spring housing market is off to an unpredictable start amid rising mortgage rates, according to the National Association of Realtors (NAR).  The NAR reported pending home sales, which counts the number of transactions in which a contract has been signed but not yet closed, dropped 1.2% in March.  This was the fifth consecutive month in which contract signings declined.  Pending sales dropped the most in the Midwest—down 6.1%.  Contract signings also fell in the South and the West.  Signings rose 4% in the Northeast, but every region saw a decline in pending sales compared to the same time last year.  Lawrence Yun, chief economist for the NAR stated, “The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions.”  Yun added that rising mortgage rates have already begun to reduce the pool of eligible homebuyers.  Yun said he now predicts existing-home sales will decrease 9% in 2022.

Home prices continued their historic rise in February as rising mortgage interest rates have not yet (thru February) slowed the blistering pace of house appreciation.  The S&P CoreLogic Case-Shiller 20-city home prices index posted a huge 20.2% year-over-year gain in February—up markedly from 18.9% the prior month.  On a monthly basis, the index increased 2.4% between January and February.  Similarly, on a national level the Case-Shiller home price index increased 19.8% over the past year.  This represented the third-largest pace of home-price appreciation in the report’s history.  As in previous months, Phoenix led the way with the highest rate of home price growth—up an annual 32.9% over the past year.  Two Florida cities closely followed, Tampa with a 32.6% gain and Miami with a 29.7% rise.  Selma Hepp, deputy chief economist at CoreLogic noted rising mortgage rates will undoubtedly cool the housing market sooner rather than later.  Hepp wrote in a note to clients, “With diminished buying power and mortgage rates pushing above 5% in recent weeks, home-price growth is likely to take a step back in coming months.”

The Federal Reserve’s ‘preferred’ measure of inflation rose a sharp 0.9% in March, but the increase stemmed largely from a surge in the cost of gas.  Over the past 12 months, the Personal Consumption Expenditures Index (PCE) has risen 6.6%, up 0.2% from February.  That’s the steepest rise since 1981.  Yet the narrower measure of inflation that strips out the food and energy categories, known as core PCE, rose at an annualized 5.2%.  That number matched forecasts.  The Fed views the PCE index–the core rate in particular–as the most accurate measure of U.S. inflation.  It’s more comprehensive and takes into account when consumers substitute cheaper goods for more expensive ones–say ground beef for steak or frozen spinach for fresh.

Confidence of the nation’s consumers slipped this month but remained robust.  The Conference Board reported its survey of consumer confidence pulled back -0.3 point to 107.3.  Economists had been expecting a reading of 108.5.  Consumer confidence had declined early in the year following the Omicron outbreak and later the war in Ukraine.  Soaring inflation and higher gasoline prices have also weighed on sentiment.  Still, economists state that the chance of a recession appears low—at least for now.  The measure of how consumers feel about the economy right now slid to 152.6 from an eight-month high of 153.8 in March.  A similar gauge that measures sentiment for the next six months rose to 77.2 from 76.7 indicating cautious optimism about the future.  Mahir Rasheed, U.S. economist at Oxford Economics stated, “Confidence has held up relatively well in the face of elevated geopolitical disruptions and the fiery pace of price increases in recent months.”

Orders for goods expected to last at least three years rebounded in March signaling the economy continued to grow at a steady pace.  The government reported orders at U.S. factories for long-lasting goods such as cars rose 0.8% last month—its sixth advance in the last seven months.  Furthermore, the initially reported -2.2% decline in February was revised to show a lesser -1.7% drop.  The increase matched the estimate of economists polled by the Wall Street Journal.  Another measure of factory conditions, known as core orders, advanced 1% in the month.  The core number strips out transportation and military equipment and gives a better sense of underlying demand in the U.S. economy.  Many analysts expect the strength in manufacturing to continue—despite rising interest rates.  Senior economist Jennifer Lee of BMO Capital Markets noted, “The solid increase in core orders suggests that businesses remain in good shape, and are still looking to bulk up its machines and equipment to contribute to their bottom lines.”

The U.S. economy contracted an annualized 1.4% in the first quarter, marking its first drop since the onset of the pandemic.  However, analysts were quick to point out that the decline stemmed predominantly from a record trade deficit.  Consumer spending and business investment remained robust.  The trade deficit by itself reduced GDP by a whopping 3.2 percentage points, the third highest number on record.  Lower government spending and a decline in inventory stockpiles also contributed to the weak GDP number.  However, some analysts were quick to point out that the reading didn’t mean a recession was imminent.  Chief economist Ian Shepherdson at Pantheon Macroeconomics stated, “This is noise, not signal.  The economy is not falling into recession.”

(Sources:  All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal,,,,,,,, Eurostat,0020Statistics Canada, Yahoo! Finance,,,, BBC,,,, FactSet.)