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It has been a challenging and peculiar year so far in 2023.
The stock market started off the year very strong, rallying emphatically in January and shaking any fears of recession. This strength would then completely reverse in February and early March trading lower for nearly six weeks and culminating in the second and third largest bank failures in US history.
But to fake investors out, this crisis would be the start of an epic run up in stocks, particularly big tech.
Stock indexes are now pushing the yearly highs daily, and the narrative of ‘New Bull Market’ has returned.
Q1 Review:
Nasdaq +16% YTD
S&P 500 +7% YTD
Bitcoin +70% YTD
Two large banking failures and major regulatory response
$500 billion expansion in Federal Reserve Balance sheet
Continued disinflation, albeit very slow progress
U.S. Unemployment rate 3.6%
U.S. GDP growth 2.5% (Based on Atlanta Fed GDPNow)
Extremely volatile and constantly shifting expectations for Fed interest rate policy
If you were hoping the action might slow after the first quarter, forget it, because over the weekend OPEC+ made a major announcement about crude oil production rates. After reaffirming their stance on tightened the oil supply a few weeks ago, OPEC+ made a surprise decision this weekend and further cut production by 2 million barrels a day. This boosted WTI oil prices by 6.5% on Monday morning to $80/barrel. This action has implications on expected slowing global economic growth, and more importantly the rate of inflation.
By midday Monday, the SPDR Energy ETF (XLE - Free Report) was up +4.3%, Chevron (CVX - Free Report) is up +4.1%, and Occidental Petroleum (OXY - Free Report) is up +4.5% while Valero Energy (VLO - Free Report) , and Marathon Petroleum (MPC - Free Report) have shed their early gains, and are now down on the day marginally.
Image Source: Zacks Investment Research
Monday:
McDonald’s (MCD - Free Report) announced that it is temporarily shutting down its U.S. offices as it prepares to layoff corporate employees. It is not yet clear how many people will be laid off, but the decision comes as part of a broader company restructuring. McDonald’s joins a growing list of corporate giants who have been forced by the changing environment to partake in large-scale layoffs to prioritize profits.
ISM Manufacturing PMI decreased to 46.3 in March, the lowest since May of 2020, and compared to 47.7 in February and expectations of 47.5 showing that rising interest rates and growing recession fears are starting to weigh on businesses.
Tuesday:
On Tuesday morning we will get economic data in the form of JOLTS jobs openings. The number of job openings in the United States fell by 410,000 to 10.8 million in January, and with the tightening economic conditions it will be critical to see where this number lands.
Image Source: CME Group
Wednesday:
Wednesday morning is a bit busier on the economic data front. First is ADP employment numbers, then the U.S. trade balance, followed by the ISM non-manufacturing PMI.
Additionally, Wednesday morning we will get EIA crude and gasoline stocks, which are even more serious now with the changing energy policy from OPEC+. U.S. crude oil inventories have been falling, which does not bode well for consumers or inflation data.
Image Source: CME Group
Thursday:
Thursday morning, we will get the figures from the Initial jobless claims report. Additionally, at 10 am EST there will be a speech from Fed President James Bullard. Bullard has quickly become one of the most outspoken members on the Fed board. Just a couple months ago, before the banking crisis, he said that he believed the Fed should resume 50 basis point rate hikes, which was a huge surprise to the market. It will be very interesting to see where he stands now, especially in response to the shifting energy market.
Friday:
Friday morning, we will receive probably the most important economic figure for the week, U.S. unemployment. The unemployment rate in the U.S. has only just begun to edge higher from 50-year lows. In February unemployment rose to 3.6%, from 3.4% in January. Consensus estimate for the March data project the rate to be 3.6%, so unchanged month over month.
Conclusion
This week shouldn’t be a particularly active one until we get Friday’s employment data. Next Wednesday the March CPI and Core CPI report will be released, which remains the most important piece of data for the market, and a primary macro catalyst.
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Week Ahead: Oil Rallies and McDonalds Falters
It has been a challenging and peculiar year so far in 2023.
The stock market started off the year very strong, rallying emphatically in January and shaking any fears of recession. This strength would then completely reverse in February and early March trading lower for nearly six weeks and culminating in the second and third largest bank failures in US history.
But to fake investors out, this crisis would be the start of an epic run up in stocks, particularly big tech.
Stock indexes are now pushing the yearly highs daily, and the narrative of ‘New Bull Market’ has returned.
Q1 Review:
If you were hoping the action might slow after the first quarter, forget it, because over the weekend OPEC+ made a major announcement about crude oil production rates. After reaffirming their stance on tightened the oil supply a few weeks ago, OPEC+ made a surprise decision this weekend and further cut production by 2 million barrels a day. This boosted WTI oil prices by 6.5% on Monday morning to $80/barrel. This action has implications on expected slowing global economic growth, and more importantly the rate of inflation.
By midday Monday, the SPDR Energy ETF (XLE - Free Report) was up +4.3%, Chevron (CVX - Free Report) is up +4.1%, and Occidental Petroleum (OXY - Free Report) is up +4.5% while Valero Energy (VLO - Free Report) , and Marathon Petroleum (MPC - Free Report) have shed their early gains, and are now down on the day marginally.
Image Source: Zacks Investment Research
Monday:
McDonald’s (MCD - Free Report) announced that it is temporarily shutting down its U.S. offices as it prepares to layoff corporate employees. It is not yet clear how many people will be laid off, but the decision comes as part of a broader company restructuring. McDonald’s joins a growing list of corporate giants who have been forced by the changing environment to partake in large-scale layoffs to prioritize profits.
ISM Manufacturing PMI decreased to 46.3 in March, the lowest since May of 2020, and compared to 47.7 in February and expectations of 47.5 showing that rising interest rates and growing recession fears are starting to weigh on businesses.
Tuesday:
On Tuesday morning we will get economic data in the form of JOLTS jobs openings. The number of job openings in the United States fell by 410,000 to 10.8 million in January, and with the tightening economic conditions it will be critical to see where this number lands.
Image Source: CME Group
Wednesday:
Wednesday morning is a bit busier on the economic data front. First is ADP employment numbers, then the U.S. trade balance, followed by the ISM non-manufacturing PMI.
Additionally, Wednesday morning we will get EIA crude and gasoline stocks, which are even more serious now with the changing energy policy from OPEC+. U.S. crude oil inventories have been falling, which does not bode well for consumers or inflation data.
Image Source: CME Group
Thursday:
Thursday morning, we will get the figures from the Initial jobless claims report. Additionally, at 10 am EST there will be a speech from Fed President James Bullard. Bullard has quickly become one of the most outspoken members on the Fed board. Just a couple months ago, before the banking crisis, he said that he believed the Fed should resume 50 basis point rate hikes, which was a huge surprise to the market. It will be very interesting to see where he stands now, especially in response to the shifting energy market.
Friday:
Friday morning, we will receive probably the most important economic figure for the week, U.S. unemployment. The unemployment rate in the U.S. has only just begun to edge higher from 50-year lows. In February unemployment rose to 3.6%, from 3.4% in January. Consensus estimate for the March data project the rate to be 3.6%, so unchanged month over month.
Conclusion
This week shouldn’t be a particularly active one until we get Friday’s employment data. Next Wednesday the March CPI and Core CPI report will be released, which remains the most important piece of data for the market, and a primary macro catalyst.