In his Daily Market Notes report to investors, Louis Navellier wrote:
Manufacturing data is weaker, inflation data is higher, yields are up, and stocks are down.
ISM manufacturing PMI for February came in softer than forecast but prices rose much more than expected. The 2-year US Treasury yield is up to 4.84%, the highest since 2004, up over 40bps YTD The US 10-year is now 3.99%. Stocks are not liking these developments, as the indexes attempted to rally on the open and then headed south, following the bond market.
More Fed speak today reinforced the higher for longer theme. But with the VIX flat, it doesn't appear that fear is actually that much higher. The higher rates are hitting the housing market hard; with mortgages up half a percent in a month. Purchase money loan demand has hit a 28-year low, down 6% in a week and down 44% y-o-y. Interestingly, despite higher interest rates, the US dollar index is lower and gold is higher.
Lowe's (NYSE:LOW) reported a beat on the bottom but a miss on the top and echoed the cautious outlook most retailers have been giving. The stock is down 5.3% on the day and -2.1% YTD. The focus is on the next Fed increase, scheduled for March 22nd, and whether a 50bps increase is a real possibility.
China Showing Life
The recovery in China finally showed real signs of life, with the purchasing managers index jumping to the highest since April 2012. The Hang Seng index is up 4.3% on the news. Other China readings showed above expectations growth in services and construction.
Admittedly it's a coincidence that these favorable numbers come right before next week's National People's Congress, where a new growth target will be set.
Political pushback against China continues to rise in the US, especially against the proliferation of the Tik-Tok social media app. Growth in China should be good for energy demand and crude oil is back above $77/bbl.
Weak Earnings Quality
With all the stock indexes down on a trailing month basis and earnings season winding down, investors are looking for the catalysts that might trigger a bounce in valuations. An ominous development is that earnings quality is weakening, with earnings increasing faster than cash flow, with cash flows now trailing profits by the most on record.
Best to stick to higher-quality stocks with strong cash flows as the Fed continues to tap the brakes.
Even though Congress is more diverse today than it has ever been, the overwhelming majority of U.S. Congressmen, Congresswomen, and Senators is white and of non-Latino descent. Of the minority members, 113 are currently holding Congressional office as Democrats, as opposed to 30 serving as Republicans. Source: Statista. See the full story here.