How To Navigate Market Turbulence and Earnings

During the past week, we saw the markets grapple with a several headwinds that led to further selling. When last week’s CPI report came in hotter than expected for the second month in a row this signaled that inflation is not falling at a satisfactory pace for the Fed and even raised fears that it might be reaccelerating. The fallout from this was that U.S. Treasury yields saw a sharp rally higher. Additionally, investors’ hopes for three or more rate cuts this year from the FOMC were dashed. Coupled with this were growing geopolitical fears related to the war in the Middle East and that there soon could be significant escalation. This uncertainty stoked fears that oil prices could soon jump even higher after the commodity’s recent rally. These headwinds resulted in all three major indices ending the week in the red for the second week in a row, the third for the Nasdaq. However, despite the turbulent week, the Nasdaq index quietly made a new All-Time closing high on Thursday.

Upcoming this week, there are a handful of notable events that our team is watching closely. This week, investors will get the most recent U.S. Retail Sales data which will help to shed light on the U.S. consumer and their resilience. Also expected early in the week are a handful of significant reports for the U.S. homebuilding sector. The Home Builder Confidence Index (HMI) as well as new Housing Starts & Building Permits reports will be released. The Homebuilding sector has been a top performer thus far this year, however a recent uptick in rates has put some pressure on the sector. Strong data in these reports would be welcome news to investors in this sector. In addition to this macro data, Q1 earnings season is now in full swing. This week we have a number of major financials reporting including Goldman Sachs Group, Inc. & Bank of America Corp. On top of that there are some notable technology companies due to report this week as well in Taiwan Semiconductor Mfg. Co. & Netflix, Inc.

U.S. Retail Sales – On Monday, the U.S. Census Bureau will reveal their monthly retails sales report. The U.S. Retail Sales report serves to quantify the total that U.S. consumers spent on both durable & non-durable goods. This report is a key piece of macroeconomic data as retail sales are an important measuring stick for the health of the U.S. economy.
- Retail Sales for March are expected to show an increase of 0.3%, which follows February’s report, where retail sales increased by 0.6%.

Home Builder Confidence Index (HMI) – Also on Monday morning, we will get the HMI report for the month of April. The HMI report serves as a confidence gauge for the U.S. home builder industry. The HMI index has been trending upward over the past four months after rebounding off of the November low.
- The consensus prediction for April is that the HMI index will come in at 51. If this report meets expectations, it would be in line with the March report of 51.

Housing Starts & Building Permits – Following Monday’s HMI report, on Tuesday morning, investors will get the latest reads from the Census Bureau on new housing starts as well as new building permits issued in the month of March. This data is significant as it reflects how much work U.S. home builders currently have scheduled. Additionally, it can provide helpful information about the current state of the economy and the consumer’s appetite for spending on large purchases such as housing.
- New Housing Starts & Building Permits for March are expected to come in at 1.47 million & 1.5 million respectively.

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Federal Reserve Watch

The past week featured numerous Fed member speaking engagements, however they generated few headlines as much of their hawkish talk had been done in previous weeks. Additionally, last week’s hotter than expected CPI report did most of the work for them in place of any further hawkish talk. Despite all the noise surrounding the Fed, the clear message is that they are remaining data dependent and need to see further evidence that inflation is still falling and moving toward the target rate before they feel comfortable reducing rates. The next FOMC meeting is set for May 1^st and according to Fed Funds Futures, it seems a foregone conclusion that the committee will opt to maintain current policy levels at this meeting. Given the few recent hotter than expected inflation reports, the committee has not seen the body of evidence yet that they are looking for. Looking at current Fed Funds Futures, they are now only pricing in one twenty-five basis point cut between now and the end of the year. This is less than the three rates cuts that the FOMC had telegraphed in their recent ‘dot plot’ release. Following the upcoming meeting there will be five meetings remaining before the end of the year.

Looking beyond the upcoming May FOMC meeting, Fed Funds Futures have shifted significantly following last week’s developments. According to the CME’s FedWatch tool, the market is not potentially expecting a cut until July’s meeting. However, these odds are slim, standing at only a 56.9% probability of a cut. The odds of a policy rate cut at the September meeting currently stand at a 73.7% probability. The recent inflation data has put a damper on investor’s hopes for multiple rates cuts this year.

This Week’s Notable Earnings

With Q1 earnings season now underway, we will hit the ground running this week as there are a handful of major financials that will report towards the beginning of the week. This group includes Goldman Sachs Group, Inc., Charles Schwab Corp., Bank of America Corp., & Morgan Stanley. There are two semiconductors-related companies set to report this week in ASML Holding N.V. & Taiwan Semiconductor Mfg. Co. Finally, the last major company set to report earnings this week that our team is watching is streaming giant, Netflix, Inc.

On Monday morning, prior to the opening bell both Goldman Sachs Group, Inc. & Charles Schwab Corp. will post their Q1 earnings. Following them, on Tuesday morning both Bank of America Corp., & Morgan Stanley will report their latest quarterly earnings. If there is anything to be gathered from the market’s reaction to bank earnings last week, the bank’s reports likely need to be very strong to merit a positive response from investors.
- BAC earnings are expected to come in at $0.77 EPS.
- GS earnings are expected to come in at $8.66 EPS.
- MS earnings are expected to come in at $1.69 EPS.
- SCHW earnings are expected to come in at $0.74 EPS.

Another pair of companies set to report this week that our team is keeping our eye on are two semiconductor-related companies. First, on Wednesday morning, ASML Holding N.V. will post their Q1 results. Then on Thursday after the market closes, Taiwan Semiconductor Mfg. Co. will reveal their first quarter earnings. The semiconductor sector has been a major player in the market’s recent rally so these reports will be heavily analyzed by investors.
- TSM earnings are expected to come in at $1.32 EPS.
- ASML earnings are expected to come in at $3.14 EPS.

Additionally, on Thursday after the closing bell, Netflix, Inc. will report their Q1 results. According to analysts’ forecasts, NFLX is expected to grow their Q1 EPS by 56.9% YoY. If NFLX can deliver on these lofty expectations, expect this to provide a boost to the stock.
- NFLX earnings are expected to come in at $4.52 EPS.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,

Blane Markham

Author, Weekly Market Periscope

Hughes Optioneering Team

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