Global Courant 2023-05-06 03:58:36
For the immediate economic and earnings and growth outlook, it seems almost irrelevant whether regional bank stocks rise, stabilize or sell more next week. Regional banks were top-of-mind for investors last week as First Republic failed, the SPDR S&P Regional Banking ETF plummeted more than 10% — twice the five-day loss in the S&P 500 Energy Index, the hardest hit S &P sector — and lenders like PacWest Bancorp and Western Alliance Bancorp lost billions in market value. And despite that, the S&P 500 only fell about 0.75% this week. Now the conventional wisdom on Wall Street is that no matter how regional bank stocks trade, it’s a given that bank lending will retract their horns and risk management agencies will become more risk averse. In other words, credit will be harder to come by. Fed Chairman Jerome Powell was asked about the survey among senior bank credit officials at his press conference Wednesday “because the market is focused on how much slowdown we will see in lending as credit standards rise, and banks are much more cautious and restrictive on spending of new loans,” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, NC. As a result, Krosby will also scan next Tuesday’s April National Federation of Independent Business report to see if small business owners are having trouble getting loans or reporting that the lending environment is more restrictive. “Because if it does, we do indeed see a tighter credit environment, it will certainly help the Fed” to slow the economy and dampen demand. What’s more, by early next week, there will be less than four weeks until the earliest date the Treasury could cross the debt limit, according to Treasury Secretary Janet Yellen’s latest letter to Congress. That will lean “heavily” on the market if it coincides “with evidence that tighter bank lending conditions are leading to higher unemployment and greater recession risks,” Peter Oppenheimer, Goldman Sachs’ chief global equity strategist, said in a note late this week. There were no signs of higher unemployment on Friday, as the April unemployment rate stood at 3.4%, the lowest since 1969, and nonfarm wage growth was well above Wall Street estimates. Debt ceiling gains focus The deadlock in the debt ceiling is already beginning to draw investors’ attention. While capital markets assumed that this week’s debate within the Federal Reserve was solely about the trade-off between raising rates to fight inflation and the pain inflicted on US regional banks, “Another story the Fed is almost certainly would have discussed is a possible one if the US government runs out of money to pay its bills,” said Huw Roberts, head of analysis at Quant Insight in London. “The political deadlock is getting worse.” The Fed wrapped up its two-day meeting on Wednesday raising its benchmark Fed Funds rate by a quarter point to a top 5.25% With only about 30 companies in the S&P 500 reporting earnings next week (notably Disney, post-market Wednesday), up from about 175 this week, attention will instead focus on the April consumer price index that the Bureau of Labor Statistics will release next Wednesday morning.The consensus among economists is that aside from volatile food and energy prices, core inflation has only decreased slightly, from 0.4% in April to 0.3%, while the year-on-year increase slowed to 5.4% in April from 5.6% in March. Progress perhaps, but still well above the Federal Reserve’s 2% inflation target. Markets in Range Despite Friday’s stock market rally, Goldman Sachs sees equity markets continue to be characterized by a “thick and flat” trading range, noting that global equity markets are up some 17% since bottoming out in October. “The more recent problems in the banking system created a brief period of contagion fears, but led to expectations of imminent interest rate cuts that have since faded in part on more resilient growth data,” strategist Oppenheimer wrote. But stocks are still dealing with a host of issues, which won’t go away next week. Goldman points to the risk of a slower economy than otherwise would have been in the second half due to the fallout from the banking crisis and tightening credit conditions, which will collectively reduce about 0.4% of GDP growth in 2023 . In fact, “inflation, while showing signs of moderation, remains sticky. The labor market remains tight and wage inflation is rising. The tightness in the labor market remains a double-edged sword, supporting consumption on the one hand but also contributing to on the other a higher risk of inflation for longer,” Goldman believes. Meanwhile, the Cboe Volatility Index reading of below 17 late Friday indicates high levels of complacency in the market, a very small number of stocks are contributing hugely to the market indices, and “high cash yields mean that there are now reasonable alternatives (TARA) and that sets the bar very high for equities,” Goldman said.Indeed, Barclays Investment Bank said Friday that money market funds raised more than $50 billion again last week , have risen for nine weeks of the past 10 weeks, attracting nearly $700 billion from investors so far this year, with inflows into fixed income investments reaching $130 billion so far in 2023, Barclays said. “What was seen as a pivotal week for the markets has not made much of an impact on the conundrum facing investors,” said strategist Emmanuel Cau. “Stocks are in limbo at the end of the cycle, torn between hopes of peak prices and fears of a recession.” Week Ahead Calendar Monday 10am Wholesale Stocks (March) 2pm Fed Senior Loan Officer Opinion Survey Earnings: Viatris, Tyson Goods, Dish Network, McKesson, Skyworks Solutions, Western Digital, DaVita, Paypal Tuesday 6am NFIB Small Business Index (April) Earnings : Waters, Catalent, Air Products & Chemicals, Fox Corp., International Flavors & Fragrances, Duke Energy, Henry Schein, Jacobs Solutions, Ventas, Devon Energy, TransDigm, Akamai, Axon Enterprise, Electronic Arts, Occidental Petroleum Wednesday 8:30 am CPI (April) Earnings: Celanese, Lincoln National, Disney Thursday 8:30 a.m. PPI (April) 8:30 a.m. Initial Unemployment Claims (Week Ending May 6) Earnings: Tapestry, PerkinElmer, Charles River Laboratories, Steris, Gen Digital Friday 8:30 am Import/Export Price Indexes (April) 10:00 am University of Michigan Consumer Confidence Index (Flash May) — CNBC’s Hakyung Kim, Fred Imbert, and Michael Bloom contributed to this report.
