April Selloff Continues…..

U.S. equities finished solidly lower, continuing a recent slide after yesterday’s one-day reprieve that saw stocks make a big reversal and finish in the green. Earnings were in focus as PepsiCo, GE, and Dow member 3M all beat on both the top and bottom lines, while investors awaited reports from several heavyweights after the closing bell. However, the markets continued to grapple with several headwinds including expected Fed aggressiveness moving forward, the ongoing war in Ukraine, inflation pressures, and Covid-related lockdowns in China, and if it portends to an economic slowdown. The economic calendar was robust, as consumer confidence dipped slightly this month, new home sales fell, but home prices rose over 20% year-over-year, manufacturing activity increased slightly, and durable goods orders rose. Treasuries were higher to put pressure on yields, and the U.S. dollar added to a recent rally, while crude oil prices finished to the upside, and gold saw a modest gain. Markets in Europe finished mostly lower amid the myriad headwinds, and stocks in Asia were mixed with the lockdowns in China sapping sentiment.

The Dow Jones Industrial Average fell 809 points (2.4%) to 33,240, the S&P 500 Index decreased 121 points (2.8%) to 4,175, and the Nasdaq Composite declined 514 points (4.0%) to 12,491. In moderate volume, 4.6 billion shares of NYSE-listed stocks were traded, and 5.0 billion shares changed hands on the Nasdaq. WTI crude oil gained $3.16 to $101.70 per barrel. Elsewhere, the gold spot price traded $6.50 higher to $1,902.50 per ounce, and the Dollar Index was up 0.6% at 102.35.

The Conference Board’s Consumer Confidence Index decreased to 107.3 in April from March’s upwardly-revised 107.6 level, and versus the Bloomberg estimate calling for a reading of 108.2. The overall index was boosted by the Expectations Index of business conditions for the next six months portion of the index, which increased to 77.2 from March’s upwardly-revised 76.7 level, while the Present Situation Index portion of the survey declined to 152.6 from the previous month’s positively-revised 153.8 level. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—decreased to 44.6 from the 47.1 level posted in March.

In housing news, new home sales fell 8.6% month-over-month (m/m) in March to an annual rate of 763,000 units, shy of the Bloomberg consensus forecast calling for a rate of 768,000 units, and below February’s upwardly-revised 835,000-unit level. The median home price rose 21.4% y/y to $436,700. New home inventory rose to 6.4 months from February’s level of a 5.6-months’ supply at the current sales pace. Sales fell m/m in all four regions of the Northeast, Midwest, South, and West. Sales in the Midwest and South were lower y/y, while sales in the West were higher, and sales in the Northeast were flat. New home sales are based on contract signings, offering a timelier read on housing activity compared to the larger contributor of existing home sales, which are based on closings.

The Richmond Fed Manufacturing Activity Index remained in expansion territory (a reading above zero) and increased to 14 from March’s 13 reading, above forecasts of 9. Capacity utilization and shipments rose, while new order volume and order backlog dipped, but all remained in positive territory.

March preliminary durable goods orders rose 0.8% month-over-month (m/m), compared to estimates of a 1.0% increase and versus February’s upwardly-revised 1.7% decline. Ex-transportation, orders were up 1.1% m/m, north of forecasts calling for a 0.6% advance and compared to February’s upwardly-adjusted 0.5% decline. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, were higher by 1.0%, compared to projections of a 0.5% rise, and versus the prior month’s downwardly-adjusted 0.3% drop.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 20.20% year-over-year (y/y) gain in home prices in February, above the Bloomberg consensus estimate of an 19.20% rise. Compared to the prior month, home prices were up 2.39% on a seasonally adjusted basis, compared to forecasts of a 1.50% gain.

Treasuries are higher to trim a recent drop that has seen rates jump as the markets continue to be uneasy amid a host of potential headwinds. Chief among them is aggressive monetary policy tightening expectations that have fostered the rise in yields, along with recent inflation data and comments from Fed officials. Fed Chairman Jerome Powell last week said a rate hike of 50 basis points (bps) was on the table for its May 4 monetary policy decision, which would be the first time it raised rates in excess of 25 bps in over 20 years. Meanwhile Fed officials have suggested that the beginning of its balance sheet reduction program was also set to start soon, with a ramp-up to $95 billion in securities to “mature off” the balance sheet each month.

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