Weekly Market Update (April 29, 2023)
Nearly half of the S&P500 companies reported 1Q earnings this week, and most of them came in better than expected. Next week will likely mark the end of Fed hiking cycle, with the steady inflation reaffirming the view of a 25bps final rate hike.
Tech: Mega-tech companies outperformed the broader market benchmark with positive 1Q earnings. Microsoft, Alphabet and Meta reported better-than-expected quarterly results. The positive results and strong growth outlook of the sector are mainly driven by the trend of artificial intelligence. However, P/E ratio of this sector is trading at 15% above the 10-year average which could be a near-term headwind.
Mortgage: Mortgage application is weak as the 30y mortgage rates remain high. However, developers are more optimistic about the home buying activity as the higher-for-longer rate expectation will likely encourage potential buyers to enter the market.
Seasonality: S&P500 has averaged an annualized return of 5% from May to October, while it is 13% from January to April and 17% from November to December. Historically, May usually has the weakest performance during the year in US equities and investors are aware of that - which may create selling pressure on equities during this period.
*Data as of market close. 5-day change ending on Friday.
VIEW FROM THE STREET
Goldman Sachs: Historically, the end of hiking cycle is a positive catalyst for stocks. However, the debt ceiling in US and seasonality could give downward pressure on US equity markets in the coming quarter.
Morgan Stanley: Avoid adding to cap-weighted index funds in US equities as their risks are concentrated. They are also negatively skewed by extreme valuations.
Morgan Stanley: The yield of 1-month and 3-month treasury bills are 3.95% and 5.16% respectively. The wide gap in yield is mainly driven by the debt ceiling window. The debt ceiling deal is likely to trigger a liquidity drain and reversal in fiscal stimulus due to treasury issuance.
Standard Chartered: Bonds are going to outperform in the coming 12 months as markets price in slower growth and lower rate. We expect the 10Y treasury bond yield to stay at 2.75-3% by year-end.
Goldman Sachs: The likelihood of a soft landing is high as the earnings are better, consumer spending is strong and labor market is robust. The key downside risk would be the lingering recession.
Morgan Stanley: Investors are suggested to keep an eye on SME businesses' sentiment which accounts for 2/3 of jobs in the US economy. Typically, SMEs borrow from regional banks which are more reluctant to extend credit now because of the turmoil of banking system.
Barclays: Economic data this week give conflicting signals for interest rate decision. The GDP and PCE are weakening while wage trajectory is firm and PCE price inflation is revised upward.
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