Current equity market malaise is cyclical, not systemic -Cresset
Main U.S. indexes rally: Nasdaq, S&P 500 both up >1%
All S&P 500 sectors positive: real estate leads
Dollar up; bitcoin gains ~4%; gold dips, crude ~flat
U.S. 10-Year Treasury yield reverses, edges lower to ~3.56%
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CURRENT EQUITY MARKET MALAISE IS CYCLICAL, NOT SYSTEMIC -CRESSET (1253 EDT/1653 GMT)
Silicon Valley Bank's failure a few weeks ago appears eerily similar to the collapse of Bear Stearns’ subprime-backed hedge funds in September 2007, which presaged the firm’s takeover as well as the great financial crisis – and resulted in a systemic collapse in global equities.
Are there any warning signs today that suggest a similar financial storm may be brewing?
As Jack Ablin, chief investment officer and founding partner at Cresset, sees it, the current equity market malaise is cyclical, not systemic.
His conclusion is based on an assessment of the five metrics Cresset uses to gauge risk positioning: valuation, economic backdrop, liquidity, psychology, and momentum.
Ablin acknowledges that equities are fully valued here at home, and, therefore, he thinks that better opportunities can be found abroad. He also admits that the current U.S. economic backdrop is troubling, with the Treasury yield curve flashing recession.
However, he says that liquidity is adequate in that even though banks are tightening, bondholders remain willing to make loans. Additionally, he sees current investor bearishness as a positive because it implies everyone is already positioned for problems.
Lastly, momentum, while not powerful, is favorable, and enough to suggest further gains ahead.
Ablin's bottom line is that, "While we’re still underweighting equity risk, with underexposure to US large caps, we’re sanguine that we’re not entering the next systemic selloff."
He adds that, "Like the Fed, however, we remain data dependent. To paraphrase John Maynard Keynes: when the data change, we’ll change our opinion."
(Terence Gabriel)
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CHIPS RALLY AS MICRON SHINES LIGHT AT END OF THE TUNNEL (1230 EDT/1630 GMT)
Semiconductor stocks are rallying on Wednesday, lifted by Micron Technology's rosy outlook for 2025, even after the memory chipmaker warned of a nearly 60% drop in quarterly sales in the current quarter.
Also boosting optimism that an industry downturn is close to bottoming out, Infineon IFXGn.DE raised its outlook for both its financial second quarter and the whole of 2023, citing resilience in its automotive and industrials divisions. The German chipmaker's stock jumped 6.9%.
Micron is climbing more than 6% after President and CEO Sanjay Mehrotra told analysts late on Tuesday that he was confident about the long-term and said the memory chip industry would see a record calendar year 2025 in terms of market size, fueled by advances in artificial intelligence. That helped investors look beyond the company's weak quarterly forecast that was in line with expectations.
The following chart provides a good example of the cyclical nature of the semiconductor industry and the memory chip business in particular.
The Philadelphia semiconductor index .SOX is jumping 2.3%, lifting its gain in 2023 to over 23%, vs the S&P 500's 5% rise. Following this year's rebound, the chip index remains down about 23% from its record high close in December 2021.
Gains in chip stocks in recent months have been driven by bets that the industry downturn, caused by economic uncertainty, elevated inventories and slow consumer spending on computers and other electronics devices, may be reaching its lowpoint, or at least that there is light at the end of the tunnel.
"We think it will take 6-9 months to see a normalized supply-demand environment. Given the aggressive supply actions by Micron and competitors, we feel it's possible for the industry to return to shortages and elevated pricing in late 2024," Needham analyst Rajvindra Gill wrote in a client note following Micron's report.
Nvidia NVDA.O, the world's most valuable chipmaker, and smaller rival Advanced Micro Devices AMD.O both added more than 1%. The two companies are major players in AI technology.
(Noel Randewich)
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GOOD HOUSEKEEPING: PENDING HOME SALES, MORTGAGE DEMAND (1123 EDT/1523 GMT)
Data released on Wednesday continued to show shoots of tulips and daffodils springing up from the recently barren gardens of the housing sector.
Signed contracts for the sale of pre-owned homes surprised economists by increasing 0.8% last month, contradicting the expected 2.3% decline.
The increase, while nominal, marks its third consecutive gain and stands on the shoulders of January's blow-out 8.1% surge.
The National Association of Realtors' (NAR) Pending Home Sales index USNAR=ECI is considered among the more forward-looking housing indicators, as signed contracts generally translate to actual sales one or two months down the road.
"After nearly a year, the housing sector’s contraction is coming to an end," writes Lawrence Yun, chief economist at NAR.
"Mortgage rates have improved in recent weeks after the federal government guaranteed the status of most mortgages amidst uncertainty in the financial market," Yun adds. "While access to commercial mortgage loans could become increasingly difficult, residential mortgage loans are expected to be more readily available."
The report can be tossed atop the growing pile of housing market indicators that point to a pendulum swinging back to "normal" following the COVID-driven boom-and-bust, which saw demand for suburban properties skyrocket along with home prices and mortgage rates.
But what goes up must come down, and soon the prospect of making monthly payments on a home drifted beyond the grasp of many potential homebuyers, bringing the whole shebang crashing back to earth.
As seen in the graphic below, pending sales plummeted as mortgage rates took off for the stratosphere, and remain at levels last seen during the Global Financial Crisis, in which the housing market played a starring role:
While we're on the subject, the cost of financing a home loan eased for the third consecutive week, according to the Mortgage Bankers Association (MBA).
The average 30-year fixed contract rate USMG=ECI shaved a negligible 3 basis points last week to 6.45%. Even so, that number is moving in the right direction for would-be borrowers.
Applications for loans to purchase homes USMGPI=ECI - also considered a forward-looking housing marker - increased by an even 2%, while refi demand USMGR=ECI enjoyed a 4.8% bump.
"While the 30-year fixed rate remained 1.65 percentage points higher than a year ago, homebuyers responded (to the rate dip), leading to a fourth straight increase in purchase applications," says Joel Kan, MBA's deputy chief economist. "Home-price growth has slowed markedly in many parts of the country, which has helped to improve buyers' purchasing power."
Indeed. The sector appears to be climbing the stairs from the basement, with building permits, home sales, inventories and homebuilder sentiment on the rise - and as illustrated by Wednesday's Case-Shiller data - home price growth cooling to pre-pandemic levels.
But the sector has only just begun to recover. Pending home sales are 26.4% below pre-pandemic levels and overall mortgage applications are down 46.5% from the same week last year.
But of course all economic data looks in the review mirror.
For a look at where investors believe the housing market will be six months to a year down the road, we turn to the stock market.
Rebased to the last 12 months, the Philadelphia SE Housing index .HGX and the S&P 1500 Home Building index .SPCOMHOME have handily outperformed the broader S&P 500 .SPX.
Wall Street was celebrating hump-day with a broad rally, with defensive stocks enjoying some healthy percentage gains and the megacap tech-plus shares providing the most upside muscle.
(Stephen Culp)
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U.S. STOCKS SEE EARLY POP AS BANKING CONCERNS EASE (1010 EDT/1410 GMT)
Wall Street's main indexes are higher early on Wednesday as easing worries about a banking crisis is lifting risk sentiment. Investors also await further economic data this week including the final read on Q4 GDP, and jobless claims on Thursday, followed by February core PCE price data, March Chicago PMI and March University of Michigan sentiment on Friday.
In any event, the S&P 500 index .SPX at about 4,010, is back up to battle its 50-day moving average, which now resides just shy of 4,014.
All S&P 500 sectors are gaining with real estate .SPLRCR and tech .SPLRCT leading the way higher. Banking indexes .SPXBK, .KRX are modestly higher.
FANGs .NYFANG and chips .SOX are among the day's early outperformers.
Here is a snapshot of where markets stood shortly after 1000 EDT:
(Terence Gabriel)
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S&P 500 INDEX: TIGHTLY PACKED (0905 EDT/1305 GMT)
For nearly two weeks, the S&P 500 index .SPX has closed inside the range defined by its tightly packed 50- and 200-day moving averages (DMA):
The SPX ended Tuesday at 3,971.27 which was the seventh-straight close between its 50-DMA, which finished at 4,013.45, and its 200-DMA, which ended at 3,954.45.
On a thrust above the 50-DMA, the next resistance will be the short-term trendline from the Feb. 2 high, which should be around 4,026 on Wednesday, and the March 22 high, which was at 4,039.49.
Additional resistance is at the March 6 high at 4,078.49 and the longer-term trend line from the January 2022 record high, which is now around 4,108.
On the downside, the next support below the 200-DMA is the March 24 low at 3,909.16. The support line from the October trough is now around 3,845.
Of note, however, since late last year, S&P 500 action has been almost perfectly contained by the 23.6% and 38.2% Fibonacci retracements of the March 2020-January 2022 advance. These levels are at 4,198.70 and 3,815.20.
Thus, for momentum players, a breakout of this multi-month range may prove to be especially enticing.
(Terence Gabriel)
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FOR WEDNESDAY'S LIVE MARKETS POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE
SPX03292023https://tmsnrt.rs/3zfGwhX
earlytrade03292023https://tmsnrt.rs/40nwuYb
Pending home saleshttps://tmsnrt.rs/3M680yl
Housing stockshttps://tmsnrt.rs/3zghEql
Boom and Bust Boom and Busthttps://tmsnrt.rs/42PuZmY
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
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