A roundup of Monday’s stock market results from across the Americas
👑 El líder:
Argentina’s Merval (MERVAL) led the gains in Latin America on Monday, closing 6.60% higher, fueled by gains of shares of Pampa Energía SA (PAMP), Central Puerto SA (CEPU) and Transportadora de Gas del Sur (TGSU2).
Argentine former president Mauricio Macri announced on Sunday that he will not run for the presidency in the elections to be held at the end of October.
In a message broadcast on social networks, Macri, who was president of Argentina from 2015-2019, turned down the request to run by leaders of the Juntos por el Cambio party.
“I want to ratify the decision that I will not be a candidate in the next election and I do it convinced that we have to enlarge the political space of the change we started,” he said in the video. Macri’s message also contained a warning that the country “is in a state difficult to recognize”.
🗽On Wall Street:
Gains in financial shares lifted US stocks, while Treasuries retreated as fears of broader contagion from the banking turmoil eased. Tech shares slumped after last week’s rally.
The S&P 500 rose on Monday, with financial firms in the index up more than 1%. Energy producers also advanced. The tech-heavy Nasdaq 100 (CCMPDL) ended the session 0.7% lower capping a two-week advance, and the Dow Jones Industrial Average gained 0.60%. The two-year Treasury yield topped 4%.
A gauge of regional lenders climbed roughly 2.5% as First Citizens BancShares Inc. rallied more than 50% after agreeing to buy SVB Financial Group’s Silicon Valley Bank. First Republic Bank jumped on a Bloomberg report that US authorities are considering expanding an emergency lending facility that would give the lender more time to bolster its balance sheet.
“The market is being pushed and pulled between banks and tech stocks. As the banks have rebounded a lot of money has come out of tech stocks which have held up the market the past two weeks,” said Joe Gilbert, portfolio manager at Integrity Asset Management. “There is a lot of churning going on under the surface right now. Plus the back up in interest rates puts cold water on the tech trade.”
The weekend may have brought some relief to the banking sector, but it will continue to be closely watched. A gauge of regional US banks has lost roughly 30% since early February.
“You have a massive tug of war between the fact that people know the fundamental outlook is poor, but a lot of people were already either short or long cash, or just generally positioned away from US equity markets, so you could argue positioning is ripe for a squeeze,” said Huw Roberts, head of analytics at Quant Insight. “The most obvious catalyst to my mind that resolves the tug of war would be a new development in terms of the credit crunch.”
Market jitters were still on display on Monday as banking stocks pulled back from an early rally and the S&P 500 retreated from a key technical level.
“There’s no doubt that the response so far has prevented the situation from becoming much worse and confidence will gradually improve as long as no other banks fall into difficulties,” Craig Erlam, a senior market strategist at Oanda wrote. “That’s obviously a big if at this point.”
The yield on the 10-year Treasury rose to around 3.54% while the interest rate-sensitive two-year jumped to 4.02%. Such an inverted yield curve — where the short-term rate is higher than the long-term — continues to signal a downturn ahead.
Fed Minneapolis President Neel Kashkari warned over the weekend that the strain on the financial sector had the US on the brink of a recession. The usually hawkish Kashkari avoided making a prediction about the central bank’s May meeting.
“Recent bank turmoil gives us increased conviction that a deeper-than-expected recession is going to hit this year,” Chris Senyek of Wolfe Research said. He also sees “blow up” risks rising. “We’re already seeing early signs of deterioration in CRE and Autos, and we believe that widening spreads signal more trouble ahead.”
US stocks have largely been shrugging off recession fears with the S&P 500 and Nasdaq both advancing over the past two weeks.
JPmorgan’s chief strategist Marko Kolanovic said the first quarter “will likely mark the high point for equities this year,” recommending investors stay defensive in a research note.
“We view the most vulnerable areas as unprofitable companies that depend on steady flow of equity capital to fund operations and tight carry trades implemented over the last 10 to 20 years,” Kolanovic wrote.
Estimates too high
One of Wall Street’s most prominent bears, Morgan Stanley strategist Michael Wilson was also cautious on stocks, saying earnings estimates and valuations need to come down.
“Given the events of the past few weeks, we think guidance is looking more and more unrealistic, and equity markets are at greater risk of pricing in much lower estimates ahead of any hard data changes,” Wilson wrote in a note on Monday.
Seema Shah, chief global strategist at Principal Asset Management, told Bloomberg TV that many US stocks were expensive and unappealing ahead of a looming economic slump.
“If you’re looking outside of the US, valuations are still pretty cheap,” she said. “There’s very little to be attractive about this US market at this stage.”
Investors will be closely watching data on the personal consumption expenditures price index, which is the Fed’s preferred measure of underlying price pressure, that will come out later this week for direction on the US central bank’s rate path. On Monday, traders were once again leaning toward a quarter-point rate hike at the Fed’s next meeting.
“If they do raise rates again - especially if they say or imply that May isn’t the last one - then we could get a risk off rally again, with defensives outperforming cyclicals,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
Elsewhere, European Central Bank Executive Board member Isabel Schnabel pushed for this month’s decision statement to signal possible interest-rate increases in future, according to people with knowledge of the matter.
Regarding currencies, the Bloomberg Dollar Spot Index fell 0.2%, the euro rose 0.3% to $1.0797, the British pound rose 0.4% to $1.2287 and the Japanese yen fell 0.7% to 131.59 per dollar.
🍝 For the dinner table debate:
The World Bank said Monday that the potential growth of the world economy by the end of the decade has slowed to its lowest levels in three decades. To back up its claim it cited the consequences of the pandemic and Russia’s invasion of Ukraine.
After starting the century on a faster trend, the global economy’s “limiting velocity” (i.e., the highest long-term growth rate it can achieve without driving inflation) would slow to 2.2% per year between 2023 and 2030.
“We could see the gestation of a lost decade for the global economy,” said World Bank chief economist and vice president for development economics, Indermit Gill. “The ongoing decline in potential growth has serious implications for the world’s ability to address the growing range of challenges unique to our time: stubborn poverty, income divergence, and climate change.”
Leidys Becerra, a content producer at Bloomberg Línea, and Peyton Forte and Emily Graffeo of Bloomberg News, contributed to this report.