Markets will be looking for clues from the Fed ahead, as historically strong month gets underway
Traders in New York City work at the New York Stock Exchange (NYSE), U.S.A, March 29, 20,22.
Brendan Mcdermid | Reuters
Stock market heading into volatile second quarter. However, April is historically the best month to invest in stocks.
While the March major indexes were up, they had a poor performance for the quarter. This is the worst performance since the pandemic. Rising interest rates have worried investors. the war in UkraineInflation, made worse by the disruptions to commodities exports from Ukraine and Russia.
April is a great month for stocks, as they are usually higher. S&P 500. The S&P has been higher 70% of the time, and has gained an average 1.7% in all Aprils since World War II, according to Sam Stovall, chief investment strategist at CFRA. For all months, the S&P averaged a gain of 0.7%.
The S&P 500 was up 3.6% in March, and Stovall said the rally could continue. Stovall stated, “I believe we reach breakeven but I would be shocked if we experience another pullback/correction before we have an ending of the year rally.”
In the coming week, the Fed will release minutes from its Wednesday meeting. Markets will continue to focus on the developments surrounding the Ukraine conflict and the Federal Reserve. On Wednesday, the Fed will release minutes. its March meeting, where it raised interest ratesThis is the first time this has happened since 2018.
A handful of Fed speakers will also be available. Fed Governor Lael brainard speaks on Tuesday.
Greg Faranello of Amerivet Securities, head U.S. rates said that the Fed Minutes could be the most important part of the week because the central bank will likely give more details about its plans to reduce its balance sheet. Reducing those holdings, which amount to nearly $9 trillion, would further tighten Fed policy.
The market is interested. Faranello said that they will be searching for clues as to how fast, large, and what the caps are.
Light economic data is available, including factory orders Monday and international trade and ISM service Tuesday. Wholesale trade Friday.
Traders will be also watching out for comments from companies before the earnings season’s first quarter, which opens in mid-April.
Stovall stated that “the first quarter earnings actually improved in the past month so that’s encouraging.”
We bid farewell to the first quarter
The DowThe first quarter was down 4.6%, but the S&P 500The stock was down 5%. Nasdaq was down 9.1%, making it the worst performer. In the past week, the Dow and S&P were slightly negative while the Nasdaq was flat.
The benchmark rate for interest rates was also affected by the dramatic change in the quarter. 10-year Treasury yieldTemporarily, 2.55% was reached in the last week after the quarter began at 1.51%.
The 10-year yielded 2.38% on Friday. 2-year yield,The Fed policy was most apparent at the rate of 2.43%, which is the highest. At the start of this year, the 2-year yielded 0.73%.
Faranello indicated that while bond yields may continue rising due to inflation fears, they can consolidate before another large move.
“I believe the market is searching for a new catalyst,” he stated. The Fed’s first quarter was about repricing, which I think we did. It was a very dramatic repricing. To see the evolution of this in the next quarter, more data is needed.
Stovall said the S&P 500’s first quarter performance is one of the 15 worst first quarters, going back to 1945. The second quarter, which was down an average of 3.8%, came out better than the first quarter. Comparable to 1994 which saw the same decline, this quarter’s decrease was equal.ThWorst quarter.
Following those fifteen weak quarters, “we actually rose 4.8% during the second quarter” and saw price rise two of three times. But for the full year, the S&P 500 gained just 40% of the time, and was down an average 2% in those years.
This year’s midterm election year means that the third and second quarters of a year are usually the most weak. Stovall explained that out of fifteen worst quarters there were five in which the midterm election year was held. Stovall also said that the second quarter experienced an average price increase of 1%. It rose only 40% during this period.
Stovall indicated that although the market might be more robust in the next quarter, it may still experience headwinds. “Oil prices are expected to stay up. He stated that Interest rates were not expected to fall and also noted geopolitical forces are likely to continue. There is a possibility for an increase of 1 percent. It is possible to make something worthwhile.”
In the first quarter of 2018, volatile and rising oil prices kept stock prices hostage as the world tried to cover Russia’s lost export barrels. Fearing that they would be subject to financial sanctions, many customers declined to purchase Russian oil.
There have been wild swings higher and lower. West Texas Intermediate oil futuresThe first quarter saw a 39% increase, making it the eighth consecutive quarter of positive results and the best since 1999. WTI fell to just below $100 per barrel on Friday afternoon.
Choppy, volatile market
Joe Quinlan is the head of CIO Market Strategy for Merrill Bank of America Private Bank. He said that he was optimistic about the market going into the second quarter but sees some challenges ahead.
Quinlan explained that the Fed needs to catch up to market expectations and work out the inflation issue. We need to anchor inflation. It will be turbulent and unpredictable year. Hard assets are more important to us, including commodities, natural gas, and energy.
Quinlan indicated that Quinlan prefers equities rather than fixed income. Fixed income has been extremely volatile. He said, “We use equities to hedge against inflation.” The framework includes more fuels, hard assets, metals, minerals, and agriculture complexes in general.
Stock market reaction to the aggressive Federal Reserve will be continued in the second quarter. This is against an economic backdrop that should have been solid. With 431,000 payrolls added in MarchAlthough the jobs data is still strong, the Fed has expressed concern about raising interest rates too rapidly, which could lead to a slowdown in the economy’s recovery and plunge it into recession.
Futures traders expect that the Fed will raise its firepower at its next meeting, which is expected to take place in May. This would mean that interest rates will be hiked by 50 basis points (or a quarter percent) during the meeting. At its March meeting, the Fed raised interest rates by a quarter of a point.
Markets are pricing in eight quarter-point hikes. Treasury yields moved up with astonishing speed, as markets’ expectations of interest rates changed. This is the The 2-year Treasury yieldThe rose to the 10-year yield,This week was the first since 2019 that it has been inverted. The market views this as an inversion. warning sign for a recession.
Fed officials indicated that they are ready to reduce the balance sheet. Kansas City Fed President Esther George this past weekThe Fed’s balance sheets will have to shrink significantly, she said. She suggested that the Fed might have held too many Treasurys, which may have lowered the yield on the 10-year note.
Faranello indicated that while interest rates will likely rise in response to rising inflation, rates are still expected to stabilize after their current run of higher rates. It is possible that the yield curve will remain inverted.
We can keep this way for at least a year and a half. Faranello: “Everyone is screaming that there is a crisis…I don’t believe the yield curve tells us that a severe recession is imminent.”
Week ahead calendar
10:00 a.m. Orders from factories
9:00 a.m. PMI Services
10:00 AM ISM Services
11:05 am Fed Governor Lael Mindard
New York Fed President John Williams, 2:00 p.m.
Earnings: Levi Strauss
Patrick Harker (Peninsula Fed President) at 9:15 a.m.
Minutes of the FOMC at 2:00 PM
8:00 a.m. St. Louis Fed President James Bullard
8:30a.m. 8.30 a.m.
Atlanta Fed President Raphael Bostic
Charles Evans (Chicago Fed President) at 2:00 PM
3.00 PM Consumer credit
New York Fed Williams, 4:05 pm
10:00 am. Wholesale trade