Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Thursday, April 18. The Bottom Line segment of today’s podcast starts at (3:35) for listeners who want to skip ahead. Be sure to check out the brand new ‘One Year Ago Today’ segment at the bottom of this page.
State of Play
Stocks dropped yesterday for no reason that was immediately apparent. Bank of America’s call that there may not be any rate cuts until March 2025 attracted a lot of attention and may have factored in. Taiwan Semiconductor (TSM 0.00%↑) just reported earnings that beat expectations across the board but failed to impress investors for whatever reason as that stock is moving lower in the pre-market. As we look at our board of indicators at 0630, things are a bit all over the place:
Stock index futures are pointed to a higher open, with the Nasdaq and S&P 500 up 0.3% to 0.4%;
Commodities are mixed. WTI crude oil continues to drop, down another 1% this morning to trade below $82/barrel. But copper is up 1.8% and cocoa prices are up another 5%;
Cryptos are moving lower with Bitcoin down 3% to trade around $61,500. Isn’t that ‘halvening’ moment supposed to be upon us?
Bonds are unchanged with the 2-year yielding 4.92% whilst the 10-year yields 4.57%.
Today’s Known Events
Earnings are the story of the day. Blackstone (BX 0.00%↑), Alaska Air (ALK 0.00%↑), Ally Financial (ALLY 0.00%↑), and D.R. Horton (DHI 0.00%↑) are also out before the open at 0930. After the close we’ll hear from Netflix (NFLX 0.00%↑).
It’s Thursday so we’ll get initial jobless claims at 0830. Economists expect 215,000 new claims, up a bit over the 211,000 seen last week and right in line with the four-week average of 214,000.
Existing home sales are out at 1000. The expectation here is for 4.2 million sales, down a bit from the 4.36 million recorded last month.
Probably neither of these will impact markets at all.
The Bottom Line©️
Maybe investors were counting on rate cuts after all? Or at least not prepared to wait until next March. It’s worth pointing out that is the most conservative case laid out by BofA. The damage wasn’t awful yesterday, but it follows a couple of weeks of lackluster action. Pessimism does appear to be in charge however and yesterday’s action looked suspiciously like a bear market, with a higher open followed by selling. If you look at the SPY 0.00%↑ you’ll notice we’re now about 4% off of the all-time high. That’s almost halfway to a correction.
Could this be a buying opportunity? Sure could. If Fed rate hikes haven’t managed to tip the economy into a recession (yet), then it stands to reason that growth can continue to chug along. It’s hard to see what’s so great about rate cuts anyway. Yeah they’re obviously constructive for the bond market, which has taken on more water in recent weeks, but historically they do not always work wonders for stocks. That’s partly because they usually come after the economy has started to contract.
Anyway, the Contrarian has taken the opportunity to add to his holdings of Johnson & Johnson (JNJ 0.00%↑) and there are other stocks at or near 52-week lows that may be interesting. (This information is provided for transparency purposes only and should under no circumstances be interpreted as investment advice of any type. Do your own research, make your own decisions).
One Year Ago Today
Encouraging data on regional banks and a rally by the KRE 0.00%↑ provided an ‘all clear’ on regional bank stocks after a month of turmoil (Daily Contrarian, April 18, 2023).
Regional banks’ troubles weren’t entirely over, as the above chart illustrates. The first move was lower as May brought additional bank failures. Then there was a recovery that culminated with a peak in December since which point the KRE has gone sideways. The fortunes have been worse for certain banks like New York Community Bancorp (NYCB 0.00%↑)…
Two years ago… read for yourself.
Housekeeping
As stated, this is not investment advice (duh). Do your own research, make your own decisions.
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Taiwan Semiconductor Earnings Beat Fails to Impress