Good morning contrarians!
Stock futures are gaining a bit after a brutal sell-off on Friday. Tech stocks once again saw the worst of it, with the Nasdaq giving up more than 4%.
As of 0640 this morning, major indexes in the U.S. are trying to rebound, each up about 0.5%.
Commodities are dropping, with WTI crude oil down 3% to $101/barrel. Industrial metals are selling off as well with copper down almost 3%. Cryptos are showing some signs of life, with bitcoin up 2% to trade around $38,400.
Bonds are flat with the 2-year yield sitting at 2.71% and the 10-year at 2.92%.
Economic Data Releases
There’s been a lot of talk about recession but little evidence outside of slumping stock markets. Okay, I suppose the negative GDP we had for Q1 counts. But other than that, there has been very little.
Maybe that will change today. Construction spending is potentially a big indicator of economic growth. Economists actually expect the month-over-month reading to have increased in March, to 0.7% from 0.5%.
The ISM Manufacturing PMI is out at 0945. Expectations here are for a reading of 57.6, an increase from the 57.1 seen last month. This part of the economy also remains in solid shape, at least according to this metric.
Earnings
Another big day for earnings awaits. Clorox (CLX), Williams (WMB), Devon Energy (DVN), Expedia (EXPE), and NXP Semiconductors (NXPI) are among the highlights.
The Bottom Line©
There is usually a lag between when the Fed starts tightening interest rate policy and the end of the business cycle. It normally takes stock markets a little while to adjust to this reality. In fact, the early stages of Fed tightening are often accompanied by the most enthusiastic parts of bull markets. This was certainly the case in 1999, the last time tech stocks had this kind of run. But even 2006 and 2015 to 2017 were good years for stocks.
So the timing of this year’s sell off, coming as it does just when the Fed has started raising interest rates, is a little peculiar — and has shocked many Wall Street insiders as a result. The question is whether a recession is indeed just around the corner — in which case investors are absolutely justified in selling all this risk — or if it won’t hit until a later date, in which case this is a buying opportunity for certain assets.
Whichever side of the divide you happen to sit, be sure to do your own research and make your own decisions.
Construction Spending, Earnings: Daily Contrarian, May 2