“Nobody is going to lose money on a deposit in a U.S. bank. It’s not going to happen.” ~ Warren Buffet, April 12
Good evening:
As we entered March, Tom Lee forecasted a strong move upward for U.S. equities in March and April. He reasoned that inflation would fall, and seasonal tailwinds would drive markets higher, particularly Technology names such as Apple, Alphabet, Amazon, and Microsoft. It doesn’t hurt that the S&P 500 has closed positive in April in 15 of the last 17 years. This year’s path feels no different.
While Tech has been a little soft in the past week, Lee–and Head of Technical Strategy Mark Newton–remain optimistic on the sector, and for good reason. Three tech giants–Apple, Nvidia, and Microsoft–accounted for more than half of the gains in the S&P 500 in the first quarter of the year. “Technology has shown scant weakness,” Newton observed, but “the broader uptrend remains very much intact.”
Brian Rauscher, our resident bear and Head of Global Portfolio Strategy, is also positive on Tech: “Tech has been a strong performer year to date, and the sector’s key indicators suggest that if any tactical relative weakness occurs during April, it would be an opportunity to raise exposure,” he said. All three of our Macro research heads are constructive on the Technology space, a meaningful consensus.
This week’s CPI report functioned as another piece of evidence that U.S. inflation is cooling. We believe the Fed’s aggressive interest-rate hiking campaign is working, and its effects will continue to roll into the market over the coming months. Further, March’s producer price index (PPI), a measure of prices paid by companies and usually a leading indicator of consumer inflation, confirmed the easing trend. PPI declined by 0.5% month-over-month vs. expectations for prices to be flat.
“It’s pretty obvious inflation isn’t going to reassert itself,” Lee said. “The primary reason core CPI has remained high is the ‘shelter’ component (+8.1% YoY),” but the BLS’s shelter measure is lagged. The real-time cost of rents, as measured by Penn State’s ACY Marginal Rent Index, tells a far different story. “Using this index, Core CPI MoM is currently NEGATIVE, and 3M SAAR is -7% and -0.8% YoY.”
Our Chart of the Week, courtesy of Fundstrat Data Science Strategist Matt Cerminaro, illustrates this point:
Lee also notes that the labor market is coming back into alignment, easing the last of the labor market pressures. Average hourly earnings are easing, rising YoY at 4.2%, right around the average since 1965. Meanwhile, labor supply continues to grow at 200k – 250k per month. In March, labor-force participation rose for the fourth consecutive month to a post-COVID high of 62.6%.
What banking crisis? Four of the biggest U.S. banks, including JPMorgan and Citigroup, reported earnings that easily exceeded expectations, despite the industry turmoil. JPMorgan posted a blowout quarter, with profits climbing 52% year-over-year to $12.5 billion, beating expectations by a wide margin. While rising rates can destroy some banks, others can still make out quite well.
JPMorgan CEO Jamie Dimon, who helped lead a big-bank plan to backstop First Republic Bank, said the bank had acted as “a pillar of strength in the banking system.” He said the economy remains on a healthy footing, but the banking upheaval will likely slow down lending. Lee has noted that slower lending could “amplify the impact of Fed hikes in place now and reduce the need for future hikes.”
Baby, it’s Gold outside: The price of Gold is sitting near all-time highs, up more than 20% from its recent November low. Gold is worth more in dollars when the greenback falls in value, lower bond yields mean less competition for gold (which produces no income), and greater risk aversion makes gold more popular. “Precious metals are one of my high-conviction ideas right now,” Newton noted in our huddle on Thursday, singling out not just gold, but also silver for the month of April.
Final thoughts
Newton sees reason to be optimistic about the overall market going forward. He noted that the tech-weighed “sideways grind” of the S&P this week obscured the strong breadth of the overall market, driven by sectors like Industrials, Materials, Energy, and Healthcare. “Eighty percent of all stocks are above their 20-day moving average, and almost 60% are above their 200-day moving average,” he pointed out.
And Lee said, “S&P 500 at 4,200 is back into play near term.”
Elsewhere
Moderna confirmed this week that it hopes to be able to offer vaccines for heart disease, some types of cancer, and other life-threatening illnesses by 2030. Dr. Paul Burton, Moderna’s chief medical officer, said that the company’s mRNA research has possible applications in “cancer, infectious disease, cardiovascular disease, autoimmune diseases, rare disease.”
Make something wonderful: The Steve Jobs Archive was released this week, including a free e-book containing a curated selection of the former Apple CEO’s quotes, emails, transcripts, interviews, and more. Said Jobs: “Think of your life as a rainbow arcing across the horizon of this world. You appear, have a chance to blaze in the sky, then you disappear.” Apple, a long-time Granny Shot, has climbed over 300% in the last five years, and we remain bullish on the company for investors with multi-year time horizons.
The International Monetary Fund said it expects real interest rates in major economies to fall to pre-pandemic levels due to low productivity levels and aging populations. “Recent increases in real interest rates are likely to be temporary,” the IMF said without predicting a timetable.
The Biden administration proposed strict new emissions limits (on an average per-mile basis across each automaker’s production) that would mean that at least 60% of new passenger vehicles sold in the U.S. would need to be electric by 2030, and up to 67% by 2032. It’s an ambitious goal: EVs accounted for 7.2% of new vehicle sales in 1Q 2023.
Global fossil fuel usage in the power sector will likely fall this year, the first time this has happened for reasons unrelated to recession or pandemic, according to Ember, an energy think tank. If so, Ember said this could foreshadow “a new era of falling fossil fuel power sector emissions.”
Alibaba unveiled Tongyi Qianwen, its AI chatbot and answer to Chat GPT and Bard. Alibaba said its chatbot will be fluent in Chinese and English and be rolled out to all of its products. First, however, Tongyi Qianwen will need the approval of the Cyberspace Administration of China, which said that all generative AIs must embody “core socialist values” and verify user identities.
And finally: It’s been over for a while, but now it’s officially over. President Biden on Monday signed a bill declaring the end of the national COVID-19 emergency. The COVID-19 public health emergency, a separate status, remains in effect until May 11 as the federal government winds down pandemic programs associated with it, such as free tests, vaccines, and treatments.
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