MW Stock-market pullbacks are price of admission. Historically, markets afterwards, this strategist says.
By Steve Goldstein
Critical information for the U.S. trading day
A rough Monday saw the S&P 500 close below its 50-day average, as surprisingly strong retail sales data and at least a pause in the fighting between Iran and Israel sent Treasury yields higher.
The benchmark index is now down 2% from its highs of late March, in choppy trade that has come after surprisingly hot inflation data, Middle East tension and an inauspicious start to first-quarter earnings season.
Keith Lerner, chief market strategist at Truist Advisory Services, said it's normal for markets to pull back - only three years out of the last 40 did not see a pullback of more than 5%.
Isolating S&P 500 SPX SPX returns and pullbacks occurring after a first-quarter gain of at least 10%, the strategist found, on average, drawdowns of 11% the rest of the year. All that said, the total return from quarters two through four averaged 11%, with 91% of those instances being positive. (1987 was of course quite the outlier.)
Lerner sees a number of factors supporting stocks, among them that the economy remains resilient. "Our motto for several months now- and the lesson from market history-is a stronger economy with fewer rate cuts is preferable to a weakening economy in need of significant rate cuts," he said. That resilient economy should support earnings.
In addition, stocks provide a partial hedge to inflation, he said, since higher inflation is associated with a higher level of sales and rising earnings.
While oil is on the rise, recessions are typically preceded by year-over-year gains of more than 80%. The front-month contract is up just 5% over the last 52 weeks.
Finally, Lerner says there's a strong band of price support for the S&P 500 in the 4,800 to 5,000 range, before structural support comes in at 4,600.
"The weight of the evidence in our work still suggests we are in a bull market, yet this corrective period likely has further to go in price and/or time," concludes Lerner. "For investors on the sidelines and below target equity allocations, we would use a dollar-cost averaging approach and look to be more aggressive should we get a deeper and more normal correction."
The market
Stock-market (ES00) (NQ00) futures turned higher after early losses. Gold (GC00)- which Citi analysts say can reach $3,000 - edged higher. The yield on the 10-year Treasury BX:TMUBMUSD10Yrose 3 basis points to 4.64%.
The buzz
Fed Chair Jerome Powell is due to hold a moderated discussion with Bank of Canada Gov. Tiff Macklem - probably in more collegial tones than Bill Maher's recent Canadian discussion. Vice Chair Philip Jefferson at 9 a.m. will deliver a speech on monetary policy during periods of uncertainty.
China reported stronger-than-forecast 5.3% first-quarter growth in gross domestic product, but slower-than-forecast retail sales and industrial production data for March. U.S. housing starts and industrial production data is due for release, as is the International Monetary Fund's world economic outlook.
Earnings were rolling in: Johnson & Johnson $(JNJ)$ bumped up the low end of its 2024 forecast as first-quarter results came in ahead of estimates. Bank of America $(BAC.SI)$ and Morgan Stanley $(MS)$ each beat earnings estimates. UnitedHealth $(UNH)$ stock rallied as the insurer beat earnings estimates.
U.K. shoemaker Dr. Martens (UK:DOCS) lost a third of its value on a warning over U.S. demand.
The Justice Department could soon file an antitrust suit against Live Nation $(LYV)$, according to a report.
International Paper $(IP)$ agreed to buy U.K. packaging company DS Smith in a $7.2 billion deal.
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Top tickers
Here were the most active stock-market tickers as of 6 a.m. Eastern.
Ticker Security name TSLA Tesla NVDA Nvidia NIO Nio DJT Trump Media & Technology GME GameStop AAPL Apple TSM Taiwan Semiconductor Manufacturing AMC AMC Entertainment AMD Advanced Micro Devices AMZN Amazon.com
The chart
One in five people say they attend religious services weekly - in what seems to be a clear violation of the Ninth Commandment. Devin Pope, a business school professor at the University of Chicago, used cell-phone geodata from over 2 million Americans to conclude that only 5% of Americans attend services weekly. While phone samples might not be perfect - people can switch them off or disable location-tracking services, for instance - the professor was able to use the cellphone data to accurately predict the number of people at a baseball game or the number of visitors to an amusement park.
Random reads
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-Steve Goldstein
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April 16, 2024 08:01 ET (12:01 GMT)
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