Markets Mixed Amid Flurry of Data, Earnings…..

U.S. equities were mixed following yesterday’s rally, as the markets sifted through a host of divergent earnings and economic data. Netflix tumbled to weigh on the Nasdaq and the Communication Services sector, while stronger-than-expected results from Dow members Procter & Gamble and IBM provided a boost to the blue-chip index. Housing data continues to be hampered by the recent spike in interest rates and housing prices, with existing home sales falling to the lowest level since June 2020 and mortgage applications dropping for a sixth-straight week. The markets also digested the afternoon release of the Fed’s Beige Book, a read on business activity ahead of its key May 4 monetary policy decision, which showed little signs of inflation waning any time soon. Treasuries were higher, pressuring yields, the U.S. dollar fell to pare a recent rally, while gold was little changed, and crude oil prices ticked higher. Europe finished broadly higher, recovering some of yesterday’s slide, while markets in Asia were mixed amid continued caution.

The Dow Jones Industrial Average rose 250 points (0.7%) to 35,161, while the S&P 500 Index shed 3 points (0.1%) to 4,459, and the Nasdaq Composite decreased 167 points (1.2%) to 13,453. In moderate volume, 4.2 billion shares of NYSE-listed stocks were traded, and 4.5 billion shares changed hands on the Nasdaq. WTI crude oil nudged $0.14 higher to $102.19 per barrel. Elsewhere, the gold spot price inched $0.20 to the upside to $1,959.20 per ounce, and the Dollar Index lost 0.6% to 100.32.

Existing home sales decreased 2.7% month-over-month (m/m) in March to an annual rate of 5.77 million units, in line with the Bloomberg consensus estimate, while February’s figure was adjusted solidly lower to 5.93 million units. Contract closings hit the lowest since June 2020, as sales in three of the four major U.S. regions fell m/m, while sales in the West held steady. Compared to last year, sales were lower in all regions. Sales of single-family homes and purchases of condominiums and co-ops were both lower m/m and from the prior year.

The median existing home price was up 15.0% from a year ago to a record high $375,300 and are up for 121 straight months as prices grew in each region. Unsold inventory was at a 2.0-months pace at the current sales rate, up from the from the 1.7-months pace a year earlier. National Association of Realtors Chief Economist Lawrence Yun said, “The housing market is starting to feel the impact of sharply rising mortgage rates and higher inflation taking a hit on purchasing power. However, he added that still, homes are selling rapidly, and home price gains remain in the double-digits. Existing home sales account for a large majority of the home sales market and reflect contract closings instead of signings.

In other housing news, the MBA Mortgage Application Index declined 5.0% last week, following the prior week’s decrease of 1.3%. The sixth-straight weekly downturn came as a 7.7% drop in the Refinance Index was met with a 3.0% fall for the Purchase Index. The average 30-year mortgage rate extended its climb, rising 7 basis points (bps) to 5.20%, and is up 200 basis points (bps) versus a year ago.

In afternoon action, the Fed’s Beige Book was released, showing that while the U.S. economy grew steadily through early April, inflation showed little signs of abating, with firms in most Districts expecting inflationary pressure in the coming months. As well, the ambiguity surrounding the outcome of the war in Ukraine has made “Outlooks for future growth were clouded by the uncertainty created by recent geopolitical developments and rising prices.” As a result of the increase in the cost of supplies, the report noted that, “A large and growing share of businesses plan to increase their selling prices in the months ahead.” The shortage of available workers was prevalent, making it difficult to recruit and retain staff, even amid an increase in wages. The Beige Book is an anecdotal report used as a tool for the Fed’s monetary policy meetings, with the next scheduled to conclude on May 4.

Treasuries were higher on the heels of 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. Recent data and comments from Fed officials have delivered details of the balance sheet reduction plan and suggested the potential for multiple rate hikes of 50 bps, which would be the first time it raised rates in excess of 25 bps in over 20 years. Fedspeak will remain in focus this week, headlined by tomorrow’s commentary from Chairman Jerome Powell.

©2022 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.