Stock indexes are mostly flat this week as Q1 earnings deliver mixed results. Regardless of how Q1 earnings shake out, bears believe there is still a mountain of obstacles ahead for stock prices, including inflation that remains somewhat hot, tighter credit conditions, high borrowing costs, and over-stretched consumer budgets. That's on top of a looming debt ceiling crisis in the US, Russia's ongoing war in Ukraine, and an accelerating technology war between the US and China.

Most of these worries have been around for months, and are also coupled with concerns about a US recession. A majority of investors expect the economy will enter recession in the second half of the year but as bears point out, analyst are still forecasting earnings growth in the last two quarters.

Forward guidance issued by companies during their Q1 reports will likely have a big impact on those forecasts. As bears see it, they need to be revised down substantially, which could in turn have a negative impact on investor sentiment.

Some bulls argue that many of the ongoing concerns hanging over Wall Street have already been priced in, pointing to the market selloff last year. While stocks have recovered some in 2023, the S&P 500 is still down more than -13% from its most recent record high of 4793.06, which was set way back in December of 2021. Bulls of course are also still betting stock prices will get a healthy boost from a pause in Fed rate hikes which many think will happen at the June policy meeting.

There is a minority that believes a pause could come at the upcoming May 2-3 meeting amid accumulating economic data that indicates the economy is slowing and inflation continues to decline.

The Fed's Beige Book yesterday revealed several districts reporting slower growth as well as a slower pace of price increases. Notably, several districts also reported declining bank lending volumes across consumer and business loans, as well as tightened lending standards.

Many economists as well as Fed officials believe that tightening credit conditions might actually better slow the economy and bring inflation back to the Fed's target rate. Fed Chair Jerome Powell said in March that tightening credit standards could have the same slowing effect on inflation that a Fed hike can.

At the same time, tightening credit conditions risk dealing a severe blow to the economy if the crunch ends up being too severe. Data today includes Existing Home Sales and the Philadelphia Fed Manufacturing Index. Earnings highlights include American Express, AT&T, Blackstone, CSX, D.R. Horton, Nokia, Nucor, PPG Industries, SnapOn, Taiwan Semiconductor, and Union Pacific. If Taiwan Semiconductor reports good earnings it should work to keep the overall tech sector supported.

As I've pointed out on several occasions, with the current weighting, how the big tech sector goes is how the overall market goes... tough to pencil in a market crash if you don't see Apple, Microsoft, Nvidia, Alphabet, Tesla, etc... rolling over and getting hit hard.

Home Prices Fell 3% in March—Biggest Annual Drop in Over a Decade: The median U.S. home sale price fell -3.3% in March to $400,528, the largest year-over-year drop since 2012. That follows February’s -1.2% dip, which was the first annual decrease since 2012. Pandemic boomtowns and pricey Bay Area markets led the price declines in March. In Boise, ID, prices fell 15.4% from a year earlier, more than any other U.S. metro area Redfin analyzed. Next came Austin, TX (-13.7%), Sacramento, CA (-11.9%), San Jose, CA (-10.5%) and Oakland, CA (-9.7%). Boise also saw the largest drop in pending home sales, with a 78.8% year-over-year decline. Nationwide, pending sales fell 26.6% on a seasonally-adjusted basis to the lowest level since the onset of the pandemic. Pending home sales dipped because of elevated mortgage rates curtailed buyer demand and a lack of homes for sale limited purchases. New listings also fell to the lowest level since the pandemic onset; homeowners stayed put in order to hold onto their low mortgage rates. The dip in sales is a major contributor to the dip in home prices; fewer buyers mean sellers need to list their homes for less money to attract the house hunters who remain. A shortage of supply actually caused bidding wars to return in some markets. This is truly a mixed market depending on location. Source Redfin

People Now Spending Quarter of Income on Childcare: Childcare costs are averaging around $10,600 per child, per year. And more than a third of parents (37%) have seen their childcare costs continue to jump over the past year. Reports found that parents who pay for childcare, they spend about 26% of their household income on this expense. Some of the latest data shows it now costs $310,600 to raise a child from birth to age 18, a +9.1% increase from five years ago. You can check your local daycare cost in a database provided HERE

America’s Richest Banker Cashes in on a Massive Bond Bet: For a decade, billionaire Andrew Beal waited for market conditions to change. With interest rates at rock-bottom levels, year after year, and other small and regional banks taking big risks to generate a little bit of income, Beal mostly did nothing. He sat on his hands while the assets of the bank that he ran decreased over a ten-year period. Then, a year ago, Beal pounced as the Federal Reserve was about to embark on a rapid series of big rate hikes to fight inflation. The sole owner and chief of Beal Bank, based in Plano, Texas, started buying, not mortgage or Treasury bonds that had for years been popular with regional banks desperate for yield. Instead, Beal bought Treasury inflation-protected securities, mostly with durations of up to three years and he bought a lot of them. By the end of 2022, Beal Bank’s assets had more than quadrupled to $32.6 billion, up from $7.5 billion at the end of 2021. The asset rise made Beal Bank the nation’s 61st biggest bank. Beal has essentially made a massive bet on inflation, buying $21.2 billion of Treasury bonds, according to filings with the Federal Deposit Insurance Corporation. The massive trade is the latest move by one of the nation’s most successful contrarian investors and provides some insight into what the nation’s richest billionaire banker thinks could be ahead for the U.S. economy. It suggests Beal believes inflation is here to stay for at least several years. Source Marketwatch

Record Number of Americans Are Politically "Independent": Gallup polling last month found that a record 49% of Americans see themselves as politically "independent". By far, it seems the dominant U.S. party isn't either Democrats or Republicans but rather "independents". This trend brings even more challenges to the two traditional parties and helps explain how volatile and split our politics have become. Gallup analyst Jeff Jones says a big reason for this change is driven by the younger generation. According to Jones, it was never unusual for younger adults to have higher percentages of independents than older adults but what is unusual is that as Gen X and millennials get older, they are staying independent rather than picking a party. Source Axios

CDW Warns That US IT Spending is Sinking Fast: Investors have been worried heading into first-quarter-earnings season that tech results could be hampered by a sharp slowdown in corporate IT spending. There are many signs of trouble, including weak earnings and forecasts from companies, and even recent cautious comments from Amazon. None of those were quite as blunt as the warning delivered late Tuesday by IT services giant CDW, though. The company said its first quarter results—to be reported in full on May 3—are going to come up considerably short of previous expectations. The company sees sales for the quarter of $5.1 billion, well below the Street consensus at $5.6 billion. And the issue is simply that customers are slowing spending. “The first quarter was marked by a period of intensifying economic uncertainty that led our customers to spend more cautiously and prioritize mission-critical initiatives,” CDW CEO Christine A. Leahy said in a statement. "Volume declines were most acute with our largest commercial customers and across transactional products.” CDW says it now expects 2023 U.S. IT spending to be down in the high single digits in 2023. Source Barrons

More Than Half of Millennials Finally Reach "Home Ownership": According to the latest data from the Census Bureau, millennials have finally reached a significant milestone: more than half own their homes. For a generation whose identity has been shaped by a tumultuous relationship with the housing market, homeownership has been a lofty goal, growing exceedingly expensive and competitive compared to when their parents were coming of age. But today the median millennial is a homeowner, with the latest millennial homeownership rate standing at 51.5 percent. Older generations, unsurprisingly, have higher homeownership rates today. While millennials crossed the 50-percent threshold in 2022, generation X is on the cusp of reaching 70 percent. 77 percent of the silent generation owns their homes, but their homeownership rate is slowly declining as they age into their 80s and 90s and some members move in with younger relatives or into assisted living facilities. Baby boomers, born into the suburbs that emerged rapidly after World War II, maintain the nation’s highest homeownership rate today at 78 percent. Millennials have had the slowest transition from renters to homeowners. By age 30, 42 percent of millennials owned their homes, compared to 48 percent of gen Xers, 51 percent of baby boomers, and nearly 60 percent of silents. That gap persists through their 30s and into their early 40s. Source Apartment List

US West Braces for the Most Epic Snowmelt in 40 Years: To get a sense of the enormous amount of water atmospheric rivers dumped on the Western U.S. this year and the magnitude of the flood risk ahead, take a look at California’s Central Valley, where about a quarter of the nation’s food is grown. This region was once home to the largest freshwater lake west of the Rockies. But the rivers that fed Tulare Lake were dammed and diverted long ago, leaving it nearly dry by 1920. Farmers have been growing food on the fertile lake bed for decades. This year, however, Tulare Lake is remerging. Runoff and snowmelt from the Sierra Nevada have overwhelmed waterways and flooded farms and orchards. After similar storms in 1983, the lake covered more than 100 square miles, and scientists say this year’s precipitation is looking similar. Communities there and across the West are preparing for flooding and mudslide disasters as record snow begins to melt. Overall, California has about double its normal snowpack, and some locations have experienced more than double the number of strong atmospheric rivers it typically sees. The result is that Northern Sierra snow water content is 197% of normal. The central region is 238% of normal, and the Southern Sierra is 296% of normal. Source Scientific American

Tesla Earnings Dented by Price Cuts: Tesla reported a 24% decline in first-quarter profit after a wave of price cuts dented the electric-vehicle maker’s bottom line. Elon Musk’s electric-vehicle maker has lowered prices for models in the U.S. by between 14% and 25% this year as it contends with weaker demand, higher interest rates and burgeoning competition. The latest round of reductions came on the eve of earnings. Tesla on Wednesday reported first-quarter profit of $2.5 billion, down from $3.3 billion a year earlier and a hair below Wall Street’s expectations. Revenue rose 24% from the year before to $23.3 billion, as Tesla delivered more cars to customers. But Tesla’s operating margin, a measure of profitability, took a hit, falling to 11.4% from 19.2% in the first three months of 2022. Tesla’s margin remains among the highest in the auto industry. Ford Motor Co.’s operating margin was around 4% in 2022, and General Motors Co.’s was around 6.6%, according to FactSet. Source WSJ

Economic Showdown Between US and China Could Make Inflation Worse: The fragmentation of the world economy into rival blocs led by the United States and China threatens to destabilize global commerce, increase inflation and weaken growth, Christine Lagarde, the president of the European Central Bank, warned. Speaking to the Council on Foreign Relations in New York, Lagarde said that economic data dating to 1900 shows that “geopolitical risks led invariably to higher inflation.” Costs tend to mount, she said, as countries stop or reduce trading with rivals and seek supplies at home or from allied countries. If world supply chains were to split along geopolitical lines, Lagarde warned, consumer prices could rise 5% in the near term and 1% in the long run. Source Fortune

Real Estate Agents are About to Get Slammed: As the pandemic's homebuying craze now seems like a distant memory, the slowdown in sales has forced a reckoning among real-estate agents who must decide whether the shrinking returns are worth the thousands of dollars and countless hours they're pouring into their businesses. The spring homebuying season, when sales typically pick up and continue rising through the peak summer months, will be a crucial test for agents of all experience levels. A rising tide is no longer lifting all boats, and the industry is bracing to find out who's in it for the long haul. Just as the housing market goes through booms and busts, so do the ranks of real-estate agents. Take the chaotic 2008 cycle: In 2006 alone, NAR added nearly 100,000 members and reached a peak of roughly 1.4 million. By early 2012, after the bubble burst, membership had plummeted to 964,000. And just as the number of Realtors swelled during the pandemic boom, the ensuing slowdown has already led to a decrease of about 74,000 members in the five months since the October peak. Source Insider

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