Live Markets: BofA trims S&P 500 target to 4,500

Standard Industries

29/04/2022 17:37

* Major U.S. indexes fall; Nasdaq down ~2%
    * All major S&P sectors down; cons disc weakest
    * Dollar, bitcoin fall; gold, crude up
    * U.S. 10-Year Treasury yield rises to ~2.90%

    April 29 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
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    BOFA TRIMS S&P 500 TARGET TO 4,500 (1215 EDT/1615 GMT)
    Bank of America Merrill Lynch equity and quant strategist
Savita Subramanian trimmed her target for the S&P 500  .SPX 
from 4,600 to 4,500 on Friday, based on the current lower
trading price against a reduction in the firm's equity risk
premium assumption. 
    While the firm is cutting its target, Subramanian says a
likely peak in rates and rates volatility could lower the S&P
500 discount rate. That would be a positive for the equity risk
premium this year, which has jumped 31 basis points to 457 basis
points. The firm has lowered their view for year end to 425
basis points, which is below the post-financial crisis average
of 508 basis points and indicates elevated risk appetite, per
Subramanian. 
    With an average peak-to-trough drop in the S&P 500 during
recessions at about 32%, Subramanian said the current
year-to-date fall of 10% in the benchmark index "can be very
roughly interpreted as discounting a one-third chance of a
recession," and more downside risk would be expected if the
recession probability climbs. 
    Against a recession backdrop, the firm has shifted defensive
on a sector basis, boosting consumer staples  .SPLRCS  two
notches from "underweight" to an "overweight" rating, while
cutting materials  .SPLRCM  to an "underweight" from "market
weight" rating.
     
    (Chuck Mikolajczak)
    *****
     
    EUROPE FINISHES HIGHER, BUT APRIL ENDS WITH LOSSES (1142
EDT/1542 GMT)
    European shares finished a choppy month on positive footing,
ending the day with gains following generally upbeat earnings.
    The pan-European STOXX 600  .STOXX  ended the session higher
by 0.7%. Germany's DAX  .GDAXI  jumped 0.8% and France's CAC 40
 .FCHI  rose 0.4%.
    Shares in Johnson Matthey rose by over 30% at one stage
before ending the day higher by 18% after the investment arm of
Standard Industries announced it had bought a roughly 5% stake
in the British industrials company.
    Deutsche Bank shares pared early gains and ended Friday's
trading session flat after prosecutors, federal police and other
officials searched the firm's HQ as part of a money laundering
investigation.  urn:newsml:reuters.com:*:nL5N2WR42N
    For the month, the STOXX 600 ended lower by 1.8%. 
    Britain's resources heavy FTSE 100 marginally outperformed
other European bourses by eking out a 0.1% gain while the DAX
fell 2.4%.
    The CAC 40 had a presidential election to deal with during
April but failed to see any notable divergence from other
indices, ending the month lower by 2.3%.
    
     
    (Samuel Indyk) 
    *****
    
    FRIDAY ECONOMIC DATA: THE SOUND OF PIGGY BANKS BREAKING
(1115 EDT/1515 GMT)
A data deluge drenched market watchers on Friday with assurances
that the American consumer will continue to do the economic
heavy lifting even as inflationary pressures weigh on their
savings and mood.    
    Consumers, who account for about 70% of the U.S. economy,
got a dose of spring fever in March.
    Adjusted personal consumption expenditures (PCE)
 USGPCS=ECI  rose 1.1%, accelerating from February's upwardly
revised 0.6% growth and breezing past the 0.7% consensus.
 urn:newsml:reuters.com:*:nL2N2WQ2K0
    Meanwhile, personal income  USGPY=ECI  increased at a more
modest 0.5%, a slowdown from the prior month's 0.7% advance but
0.1% warmer than expected.
    Taken together, the saving rate - often seen as a barometer
of consumer expectations - inched lower, to 6.2% of disposable
income. Consumers are less likely to raid the piggy bank in
times of economic uncertainty.
    But while consumer expectations are improving (see UMich,
below), inflation appears to be the heavier drag on savings.
    "Inflation continued to erode households’ purchasing power
as real disposable income fell 0.4%," writes Lydia Boussour,
Chief U.S. financial economist at Oxford Economics. "As a
result, households dipped into their savings to finance their
spending as the personal savings fell to 6.2% in March - the
lowest level since December 2013."
    Speaking of the "I" word, the PCE price index, the Fed's
preferred inflation yardstick, indeed suggests at spending
acceleration and savings depletion can be at least partly
attributed to the rising cost of essentials, such as gasoline
and food.
    Stripping away food and energy, the so-called "core" PCE
index steadied  USPCE2=ECI , growing at 0.3% from last month and
5.2% year-on-year.
    But headline PCE  USPCEY=ECI  reflects real life, which
includes gassing up the Dodge and putting meatloaf on the table.
Those prices headed up, jumping to 0.9% on a monthly basis and
to 6.6% from March 2021. 
    So does this report budge the expectations needle regarding
the Fed's actions at the conclusion of next week's policy
pow-wow? 
    "With inflation clearly in focus for policymakers, these
data do not impact the Fed’s rate hike plans next week," says
Rubeela Farooqi, chief economist at High Frequency Economics.
"We continue to expect a 50 basis point hike at the meeting."
    The graphic below shows core PCE along with other
indicators, and how altitude at which they continue to fly above
Powell & Co's average annual 2% inflation target:
    A major piece of the larger inflation puzzle is, of course,
wage growth. 
    Employment costs  USEMPC=ECI  accelerated at a
faster-than-expected pace in the first three months of the year,
according to the Labor Department.
    A 1.8% jump in the cost of benefits and a 1.2% rise in wages
resulted in a net increase of 1.4%, coming in well above the
even 1% average projection and gaining speed from the fourth
quarter of last year.
    While this report also does little to budge Fed rate hike
bets, "at the margin it makes a second 50 (basis point) hike in
June more likely," says Ian Shepherdson, chief economist at
Pantheon Macroeconomics. "After that, all bets are off, and the
pace of tightening could easily be slowed by the meltdown in the
housing market, now in its early stages, and the coming rapid
decline in inflation."
    Separately, midwest factory activity has lost steam this
month.
    The Chicago purchasing managers' index (PMI)  USCPMI=ECI 
slid by 6.5 points in April to deliver a reading of 56.4,
disappointing consensus by 5.6 points.
    A PMI reading over 50 indicates monthly expansion.
    While this series is more volatile than the national
average, it nevertheless bodes ill for the Institute for Supply
Management's U.S. PMI report due on Monday, which analysts
expect will show a nominal increase to 57.8.
    "Overall, manufacturing output continues to expand but
supply network dislocations and input shortages, which may
intensify in the near term, are a downside risk for the sector,"
Farooqi adds.
    Lastly, the University of Michigan released its final take
on Consumer Sentiment for April  USUMSF=ECI , which was a bit
less sunny than originally reported, having risen to 65.2 from
March's 59.4 print, a shade lower than the 65.7 "advance"
reading.
    Still, it should be noted that both "current conditions" and
"expectations" components are below their lowest point
immediately following the pandemic shutdowns.
    The monthly increase can be attributed almost entirely to
greater expectations, "with gains of 21.6% in the year-ahead
outlook for the economy and an 18.3% jump in personal financial
expectations," says Richard Curtin, chief economist at UMich's
Surveys of Consumers.
    Short- and long-term inflation expectations held steady, at
5.4%, and 3.0%, respectively.
    Regarding the Fed, it's on thin ice as far as consumers are
concerned. 
     The central bank's "monetary policy now aims at tempering
the strong labor market and trimming wage gains, the only
factors that now support optimism," Curtain writes. 
    "The goal of a soft landing will be more difficult to
achieve given the uncertainties that now prevail."
    Wall Street was chasing Thursday's rally with a steep and
broad sell-off.
    The S&P 500 was queueing up for its fourth straight weekly
decline. 
    (Stephen Culp)
    *****
    
    U.S. STOCKS FALL EARLY WITH AMAZON.COM (1010 EDT/1410 GMT)
    Major U.S. stock indexes are lower in early trading Friday,
led by drop in shares of Amazon.com  AMZN.O , a day after it
gave a disappointing forecast.
    Amazon's shares are down more than 11% early and are the
biggest drag on the S&P 500  .SPX  and Nasdaq  .IXIC , while the
consumer discretionary sector  .SPLRCD  led declines among major
S&P 500  .SPX  sectors.
    Data earlier in the day added to the case for an aggressive
monetary policy approach from the Federal Reserve. U.S. consumer
spending rose more than expected in March amid strong demand for
services, while monthly inflation surged by the most in 16-1/2
years.  urn:newsml:reuters.com:*:nL2N2WR1CF
    Stock investors have been worried about how fast interest
rates will rise.
    Apple  AAPL.O  shares are near flat early on Friday despite
the company's disappointing outlook after the bell Thursday.
    Here is the early market snapshot:
    
    
    (Caroline Valetkevitch)
    *****
   
    BEARS HIGHEST SINCE FINANCIAL CRISIS LOWS (0905 EDT/1305
GMT) 
    Pessimism over the short-term direction of the U.S. stock
market surged to its highest level since 2009 in the latest
American Association of Individual Investors Sentiment Survey
(AAII). With this, optimism remains at an "unusually low level."
 
    AAII reported that bearish sentiment, or expectations that
stock prices will fall over the next six months, jumped by 15.5
percentage points to 59.4%. Pessimism was last higher on March
5, 2009 (70.3%). (Of note, the S&P 500's Financial Crisis
closing low occurred on March 9, 2009). This is the fourth
consecutive week and the 22nd time out of the last 23 that
bearish sentiment is above its historical average of 30.5%. "It
is also the 12th time out of the last 15 weeks with an unusually
high level of pessimism."
    Bullish sentiment, or expectations that stock prices will
rise over the next six months, fell by 2.4 percentage points to
16.4%. This is just the 35th time in the history of the survey
that bullish sentiment is below 20%. (The survey was started in
1987.) Optimism is below its historical average of 38.0% for the
23rd consecutive week and is at an "unusually low level (below
27.9%) for the 13th time out of the last 16 weeks."   
    Neutral sentiment, or expectations that stock prices will
stay essentially unchanged over the next six months, collapsed
by 13.1 percentage points to 24.2%. The drop puts neutral
sentiment below its historical average of 31.5% for the first
time six weeks.  
    With these changes, the bull-bear spread widened to -43.0%
from -25.0% last week  urn:newsml:reuters.com:*:nL2N2WK160  urn:newsml:reuters.com:*:nL2N2WQ156:
    
         
    AAII noted that this week's bearish sentiment reading ranks
among the 10th highest in the history of the survey. With this,
the bull-bear spread is the sixth most negative it has ever
been.
    AAII added that "historically, the S&P 500 index has gone on
to realize above-average and above-median returns during the
six- and 12-month periods following unusually low readings for
bullish sentiment and for the bull-bear spread. Unusually high
bearish sentiment readings historically have also been followed
by above-average and above-median six-month returns in the S&P
500." 
    
    (Terence Gabriel)
    *****
    
    U.S. STOCK FUTURES RED AFTER WEAK RESULTS, INFLATION DATA
(0845 EDT/1245 GMT)
    U.S. equity index futures are negative after the release of
0830 EDT inflation data in the form of the U.S. March core PCE
price index.  urn:newsml:reuters.com:*:nL3N2WR227
    Month-over-month and year-over-year core PCE readings came
in at 0.3% and 5.2% vs Reuters Poll numbers calling for 0.3% and
5.3%.
    That said, the futures were already under pressure given
premarket losses in Apple  AAPL.O , Amazon.com  AMZN.O  and
Intel  INTC.O . After the close on Thursday, AAPL warned on
supply constraints  urn:newsml:reuters.com:*:nL3N2WR17W, while AMZN  urn:newsml:reuters.com:*:nL3N2WR26W and
INTC  urn:newsml:reuters.com:*:nL3N2WR1SX delivered disappointing outlooks. 
    Meanwhile, the U.S. 10-Year Treasury yield  US10YT=RR , now
around 2.89%, is attempting to end April above its 200-month
moving average, now around 2.66%, for the first time since March
1989. A monthly resistance line from September 1981 is now
around 2.85% - click here:  urn:newsml:reuters.com:*:nL2N2WO0QL
    Of note, with April trading drawing to a close, the S&P 500
 .SPX  and Nasdaq Composite  .IXIC  both ended Thursday on track
for their biggest monthly percentage declines since March 2020.
Meanwhile, the U.S. Dollar  =USD  is posting its biggest monthly
rise since January 2015.
    Additionally, the SPX is on pace for its worst April since
April 2002, while the Nasdaq is seeing its sharpest April loss
since April 2000.  urn:newsml:reuters.com:*:nL2N2WQ156
    Here is your premarket snapshot:
    
 
    (Terence Gabriel)
    *****
    
    FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0845 EDT/1245 GMT
- CLICK HERE:  urn:newsml:reuters.com:*:nL5N2WR48B
    
    


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premarket04222022    https://tmsnrt.rs/3F2N6us
AAII04292022    https://tmsnrt.rs/3LvWFnM
Early US market snapshot    https://tmsnrt.rs/39fNM3y
Personal consumption    https://tmsnrt.rs/3kq9IeE
Inflation    https://tmsnrt.rs/3y32c1x
Employment costs    https://tmsnrt.rs/38EnPKV
Chicago PMI    https://tmsnrt.rs/3ya3NlU
UMich    https://tmsnrt.rs/3EZscvU
April Stocks    https://tmsnrt.rs/36YEHLJ
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)