More Bank Earnings, Housing Starts, Waiting On Israel And Powell

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Photo by Eduardo Soares on Unsplash

Following the Chicago Board Options Exchange Volatility Index ((VIX) closing at its highest level since late October, equity futures are mixed this morning. The market is balancing the latest wave of earnings from United Health (UNH), Bank of America (BAC), Morgan Stanley (MS), and others against weaker-than-expected China economic data while waiting for Israel’s next move following Iran’s recent attack. Yesterday’s stronger-than-expected March Retail Sales data lifted Atlanta Fed GDPNow’s model expectations for the March quarter to 2.8%, and today brings the March reports for Housing Starts and Industrial Production. While the Industrial Production data should confirm manufacturing activity found in the March Manufacturing PMI reports, eyes will be on single-family housing starts to see the rebound that began in February continued. If the data shows that it would be a positive for those companies found in our Rebuilding America model.

We will be watching those data sets to see if they merit yet another leg up in the March quarter GDP. If so, it would signal the economy is handling the Fed’s restrictive monetary policy well. That paired with the not-good inflation data from last week, could renew questions about rate cut prospects this year. It’s a good thing, and yes that is sarcasm you are hearing, that we have Fed Vice Chair Philip Jefferson on deck at 9 AM ET and Fed Chair Powell at 1:15 PM today. We would not be surprised to see Powell reference the Middle East conflict as a new uncertainty and one the Fed will be watching. And why wouldn’t he given the market is watching it as well?

If you‘re looking for us, we will be digging through those morning earnings reports and data but we will also be keeping close tabs throughout the day on the market’s reaction through the lens of 10-year Treasury yields. Early this morning, that yield hit 4.65%, the highest level since early November and the 3.86% figure at the end of last year. This tells us the market is wrapping its collective head around the prospect of far fewer rate cuts than it originally expected coming into 2024. We will now need to see the economy’s strength translate into the earnings growth expected by the market. If that expectation is not met, it’s a good thing we have our Market Hedge model, which by the way, is the best-performing model quarter-to-date. 

And lest we forget, there’s the China data we quickly referenced above:

  • China’s economy grew 5.3% in the first quarter compared with a year ago, faster than the 4.6% growth expected by economists polled by Reuters. China’s industrial output for March grew 4.5% year-on-year, missing Reuters’ expectations of a 6% expansion.
  • China’s manufacturing industry grew 5.1% while its mining industry grew 0.2%, according to the National Bureau of Statistics. The country’s retail sales grew 3.1% YoY, less than expectations for 4.6% growth. The reading also slowed from the prior month’s figure of 5.5% growth.

More By This Author:

Fed Speakers, 10-Year Treasury Yield, And The Dollar
ADP Jobs Data, March Service PMs, Powell, And The Fed Heads
Why Earnings Growth Will Matter As The Market Melts Up Further

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