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Stocks Struggle in The First Week of the Second Quarter
Key Takeaways
  • The S&P 500 closed at 4,392.65 down from 4,488.46 Friday. The VIX closed at $22.60.
  • More hot inflation data came in. CPI was 8.5% and PPI was a whopping 11.2%. Despite this development expectations for Fed hikes for the year fell.
  • Bank earnings showed a wide divergence. Banks like Goldman and Morgan Stanley beat because of trading revenues while more consumer-oriented Wells Fargo missed.
  • The War in Ukraine continues to rage, and a Russian offensive has started. The prospect of Marine La Pen getting elected in France could be problematic for Western unity.

The market had another down week. While last week was firmly led by defensives, this week showed a bit more of a mix. Technology and Communication Services were the main losers. Energy, Materials, and Staples led but Consumer Discretionary and Industrials were also slightly in the green as well. Elon Musk’s Twitter saga continued, and the world’s richest man made an offer to buy Twitter for about $43 billion, or $54.20 per share. Mr. Musk of course also used the opportunity to criticize the SEC and even called some at the agency “bastards.” Musk has spoken about his vision as making Twitter a more inclusive arena for free speech: a digital town square.

More hot inflation data came in and markets certainly didn’t act as you might expect. If you thought that the highest inflation numbers in four decades would result in Fed Futures pricing in more hikes, you would be wrong. Even though these incredibly high readings came in, the expectation for Fed Futures hikes for 2022 declined from an expectation of 9 to an expectation of 8. However, there were still some worrying elements in the report. Food, energy, and shelter costs all were a bigger portion of the gains than in previous months. Given the prominence of these items in the average consumer wallet, some fear that inflationary pressure is on the way to curtailing growth. However, there is also evidence that some contributors to inflation, like used cars, will begin negatively impacting the headline number. Our Head of Research, Tom Lee, will walk you through some of his nuanced thinking on inflation and why our base case is that we are near a peak despite the doom and gloom being professed across the Street.

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