The market the day before
The trading session on April 6 ended with a decline in the main American stock indices. The S&P 500 adjusted by 0.97% to 4481 points, the Nasdaq lost 2.22%, the Dow Jones dropped by 0.42%. The sectors of utilities (+2.00%), healthcare (+1.55%) and real estate (+1.55%) looked better than the market. The outsiders were manufacturers of cyclical consumer goods (-2.63%) and IT companies (-2.55%).
Company news
- Gogo Inc. (GOGO: +7.61%) announced that before the opening of the trading session on April 8, the company's shares will be included in the S&P SmallCap 600 index.
- Financial results of Levi Strauss & Co. (LEVI: -1.52%) for the first quarter of 2022 exceeded market expectations. Higher prices and double-digit sales growth offset the impact of supply disruptions, inventory shortages and inflationary pressures.
- SoFi Technologies (SOFI: -4.06%) lowered its forecast for 2022 due to the extension in the United States of the moratorium on payments and accrual of interest on federal student loans until the end of August as a measure of economic support. This type of loans provides a significant share of the company's revenue.
Expectations
According to the minutes of the March meeting of the US Federal Reserve published yesterday, the regulator plans to start reducing the balance sheet by $95 billion per month ($60 billion of treasury bonds and $35 billion of mortgage-backed securities), as expected, in May. This is twice as fast as the pace of the last tightening cycle in 2017-2019 and corresponds to more than 1% of the Fed's current portfolio, the size of which has expanded to $8.94 trillion. FOMC members consider it necessary to gradually establish reduction limits within three months and are considering the option of further sale of mortgage bonds. Also, as follows from the "minutes" of the meeting, many officials were inclined to increase the discount rate by 50 basis points (bp) in March, but refrained from this step due to the uncertainty of the short-term impact of the geopolitical situation on the country's economy. Nevertheless, in conditions of high inflation, it is advisable to expand the target range of the rate by 50 bps at the next meetings and reach the level of 2.50–2.75% by the end of the year.
The tougher-than-expected rhetoric of the regulator provoked the sale of shares of technology companies that are most sensitive to changes in credit conditions. As a result, the Nasdaq Composite showed the most significant decline in a month. The yield of 10-year treasuries at the moment reached its maximum since March 2019, but at the end of trading it adjusted to 2.61% (+6 bps), the indicator for "two-year-olds" decreased by 2 bps, to 2.49%.
- The stock exchanges of the Asia-Pacific region ended trading on April 7 with a drop in stock indices. Japan's Nikkei lost 1.69%, China's CSI 300 declined by 1.28%, Hong Kong's Hang Seng adjusted by 1.23%. EuroStoxx 50 has been adding 0.62% since the opening of trading.
- Against the background of reports by The Wall Street Journal about the readiness of IEA members to release 120 million barrels of oil from reserves, the price of Brent futures dropped to $101.7 per barrel. Gold is trading at $1,927 per troy ounce.
In our opinion, the S&P 500 will hold the upcoming session in the range of 4450-4500 points.
Macrostatistics
Weekly data on the number of initial applications for unemployment benefits in the United States will be published today (consensus: 200 thousand after 202 thousand a week earlier). Thus, the number of Americans continuing to receive this benefit is expected to be 1.3 million.
Sentiment Index
The sentiment index dropped two points to 46, amid the strengthening of the Fed's hawkish rhetoric and geopolitical uncertainty.
Technical picture
The S&P 500 crossed the support line at the level of the 200-day moving average. The trajectory of the RSI and MACD indicators indicate a short-term weakening of the bulls' positions. Probably, in the near future, the benchmark will test the trading range of 4450-4650 points.