Stocks Lower in Return from Holiday Weekend…..

U.S. equities finished lower in a somewhat subdued session following a long Easter holiday weekend, with Europe and other global markets remaining closed. A heavy week for earnings and economic data is on tap, which began with a stronger-than-expected report from Bank of America and another deterioration in homebuilder sentiment amid affordability challenges. Meanwhile, the hot inflation environment and elevated expectations of an aggressive Fed remained sources of uncertainty, along with the ongoing war in Ukraine and ultimate global economic impact of lockdowns in China. Treasuries were lower, pushing yields slightly higher to add to a recent slide, and the U.S. dollar added to gains seen as of late. Crude oil prices were higher, and gold continued a recent run. Asia finished mostly lower in lighter-than-usual volume amid the holiday closures.

The Dow Jones Industrial Average fell 40 points (0.1%) to 34,412, the S&P 500 Index lost 1 point to 4,392, and the Nasdaq Composite decreased 19 points (0.1%) to 13,332. In light volume, 3.8 billion shares of NYSE-listed stocks were traded, and 4.2 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.26 to $108.21 per barrel. Elsewhere, the gold spot price traded $6.70 higher to $1,981.60 per ounce, and the Dollar Index was 0.5% higher at 100.80.

The Financial sector remained in focus as the sector kicks off Q1 earnings season. Investment banking results were sluggish amid the cooled off IPO and M&A activity, while some of the uncertainty regarding the macroeconomic backdrop fostered some increases in loan loss reserves, which are taken as an expense and weigh on bottom line performance. However, trading revenues have held up amid the volatility to help provide an offset and we have seen loan growth continue.

For Q1, FactSet is estimating y/y earnings growth of 5.1%, which would mark the lowest pace of growth since Q4 2020. Although still early, of the 37 S&P 500 companies that have reported thus far, roughly 57% have topped sales expectations and about 81% have bested profit projections, per data compiled by Bloomberg.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in April slid to 77 from March’s unrevised 79 level, its lowest level in seven months and in line with the consensus Bloomberg estimate. The NAHB said, “Despite low existing inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market.” The report added that the housing market faces an inflection point as an unexpectedly quick rise in interest rates, rising home prices, and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market.

Treasuries were lower and a bit subdued after a recent drop that has seen rates jump and the yield curve steepen. The bond markets have been driven primarily by expectations that the Fed is set to get substantially aggressive with tightening monetary policy to try to combat surging inflation.

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