LIVE MARKETS-Stormy April leaves Nasdaq with biggest monthly selloff since 2008

Major U.S. indexes end sharply lower; Nasdaq down >4% All major S&P sectors red; cons disc weakest Dollar, bitcoin, crude fall; gold up U.S. 10-Year Treasury yield rises to ~2.93% April 29 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com STORMY APRIL LEAVES NASDAQ WITH BIGGEST MONTHLY SELLOFF SINCE 2008 (1610 EDT/2010 GMT) Major U.S. stock indexes sold off sharply on Friday, with the Nasdaq (.IXIC) ending down more than 4% on the day and posting its biggest monthly percentage drop since October 2008. Driving the day’s losses were shares of Amazon.com Inc (AMZN.O) , which fell 14% a day after it gave a disappointing outlook and results. Also, data added to the case for an aggressive monetary policy approach from the Federal Reserve. U.S. monthly inflation surged by the most in 16-1⁄2 years, while consumer spending rose more than expected in March. Investor worries have been increasing over how fast interest rates will rise, with the Federal Reserve due to meet next week. The Nasdaq shed 13.3% for the month, while S&P 500 (.SPX) lost 8.8%. It was the worst April for the SPX since 1970. (Caroline Valetkevitch) TECH MAY BE DOWN, BUT NOT OUT (1430 EDT/1830 GMT) The technology sector has had “an ugly month,” which means that parts of the once high-flying growth sector have become oversold, Lindsey Bell, chief markets & money strategist for Ally, wrote in a note Friday. “People seem to have given up on the stocks—even the big-cap tech names that continue to produce strong free cash flow and engage in shareholder accretive activities like stock buybacks,” she wrote. Valuations have come down in a big way, she said, adding, “In some respects, tech has begun to look more like a value sector than a growth sector.” The S&P 500 technology sector (.SPLRCT) is down around 10% for the month of April and on track for its biggest monthly percentage drop since November 2008. “There’s no doubt that a slower economy might ding profit growth, but history has shown that it is often during times of uncertainty and sluggish GDP (Q1 GDP released this week, showed a decline of 1.4%) is when pockets of quality growth stocks perform well,” Bell wrote. Moreover, despite some surprising misses this profit season, earnings growth for the first quarter has been better-than-expected for the tech sector, and 2022 earnings growth has been steady over the past two months, Bell noted. While not all tech companies should be viewed equally, investors would be smart to “stick with high-quality, high-conviction tech stocks in this environment,” she wrote. Based on Refinitiv’s data as of Friday, S&P 500 earnings are estimated to have gained 10.1% in the first quarter from a year ago, compared with a forecast for 6.4% growth at the start of the month. That’s based on results from 275 companies and estimates for the rest. Second-quarter earnings are now seen increasing by 6.4% from the previous year, down from an April 1 forecast of 6.8%, while 2022 earnings are expected to grow 9.3% compared with an April 1 forecast for 8.8% growth, the data showed. (Caroline Valetkevitch) INDIVIDUAL INVESTORS RIDE THE NASDAQ VOLATILITY COASTER (1345 EDT/1745 GMT) As part of the most recent American Association of Individual Investors (AAII) Sentiment Survey , AAII asked its members for their opinions on the Nasdaq Composite’s (.IXIC) volatility this year. AAII reported that slightly more than two out of five respondents (41%) “view the volatility from a bearish lens.” They believe volatility will persist as long as global factors such as the coronavirus pandemic and the Russia-Ukraine conflict remain under way. About 20% of respondents say that “the volatility was expected and the Nasdaq was due for a correction.” Meanwhile, around 11% have a bullish outlook regarding the volatility and the factors impacting it. Roughly 8% of respondents say that the Nasdaq’s volatility “presents them with buying opportunities.” Finally, 8% of respondents mention high valuations as the cause of the Nasdaq’s volatility. Here are a couple of quotes from investors on the matter: “The prospect for higher interest rates, higher inflation, continued supply chain problems, labor shortages and international strife will all continue to weigh on the economy.” “The Nasdaq is overvalued. Rising interest rates makes speculation in Nasdaq stocks riskier.” (Terence Gabriel) FED SEEMS INCLINED TO HIKE RATES BY 50BPS NEXT WEEK (1320 EDT/1720 GMT) Goldman Sachs strategists are out with a note saying policy action for the May FOMC meeting next week appears to be set, so the big question seems to be what will come next. Federal Reserve Chair Jerome Powell and other FOMC members have strongly suggested that they intend to raise the policy rate by 50 basis points and announce the start of balance sheet reduction, they wrote in the note late Thursday. Goldman forecasts another 50 basis-point hike in June followed by a deceleration to a 25-basis point/meeting pace of tightening for the rest of 2022. But it sees high chances that the FOMC will continue to hike in 50 basis-point increments until reaching their median neutral rate estimate of 2.25-2.5%. “We will therefore be paying close attention to any comments from Chair Powell at the press conference that suggest the FOMC intends to hike in 50bp increments beyond June,” they wrote. Investors should note that St. Louis Fed President Bullard recently raised the possibility of a future 75 basis-point hike. “We view such an acceleration in tightening as unlikely, especially because several FOMC participants have since stressed they do not see a 75bp hike as appropriate,” they wrote. Also, of note, they said, the March FOMC meeting minutes opened the door to selling mortgage backed securities (MBS) during the balance sheet reduction process. “Our best guess is that the FOMC will not do so since FOMC participants have a strong preference for using the policy rate as the primary tool for adjusting monetary policy and MBS holdings as a share of the Fed’s balance sheet will most likely never rise to an uncomfortable level.” Investors have been weighing the prospect of a more aggressive policy view from the Fed. (Caroline Valetkevitch) BOFA TRIMS S&P 500 TARGET TO 4,500 (1215 EDT/1615 GMT) Bank of America Merrill Lynch equity and quant strategist Savita Subramanian trimmed her target for the S&P 500 (.SPX) from 4,600 to 4,500 on Friday, based on the current lower trading price against a reduction in the firm’s equity risk premium assumption. While the firm is cutting its target, Subramanian says a likely peak in rates and rates volatility could lower the S&P 500 discount rate. That would be a positive for the equity risk premium this year, which has jumped 31 basis points to 457 basis points. The firm has lowered their view for year end to 425 basis points, which is below the post-financial crisis average of 508 basis points and indicates elevated risk appetite, per Subramanian. With an average peak-to-trough drop in the S&P 500 during recessions at about 32%, Subramanian said the current year-to-date fall of 10% in the benchmark index “can be very roughly interpreted as discounting a one-third chance of a recession,” and more downside risk would be expected if the recession probability climbs. Against a recession backdrop, the firm has shifted defensive on a sector basis, boosting consumer staples (.SPLRCS) two notches from “underweight” to an “overweight” rating, while cutting materials (.SPLRCM) to an “underweight” from “market weight” rating. (Chuck Mikolajczak) EUROPE FINISHES HIGHER, BUT APRIL ENDS WITH LOSSES (1142 EDT/1542 GMT) European shares finished a choppy month on positive footing, ending the day with gains following generally upbeat earnings. The pan-European STOXX 600 (.STOXX) ended the session higher by 0.7%. Germany’s DAX (.GDAXI) jumped 0.8% and France’s CAC 40 (.FCHI) rose 0.4%. Shares in Johnson Matthey rose by over 30% at one stage before ending the day higher by 18% after the investment arm of Standard Industries announced it had bought a roughly 5% stake in the British industrials company. Deutsche Bank shares pared early gains and ended Friday’s trading session flat after prosecutors, federal police and other officials searched the firm’s HQ as part of a money laundering investigation. For the month, the STOXX 600 ended lower by 1.8%. Britain’s resources heavy FTSE 100 marginally outperformed other European bourses by eking out a 0.1% gain while the DAX fell 2.4%. The CAC 40 had a presidential election to deal with during April but failed to see any notable divergence from other indices, ending the month lower by 2.3%. (Samuel Indyk) FRIDAY ECONOMIC DATA: THE SOUND OF PIGGY BANKS BREAKING (1115 EDT/1515 GMT) A data deluge drenched market watchers on Friday with assurances that the American consumer will continue to do the economic heavy lifting even as inflationary pressures weigh on their savings and mood. Consumers, who account for about 70% of the U.S. economy, got a dose of spring fever in March. Adjusted personal consumption expenditures (PCE) (USGPCS=ECI) rose 1.1%, accelerating from February’s upwardly revised 0.6% growth and breezing past the 0.7% consensus. Meanwhile, personal income (USGPY=ECI) increased at a more modest 0.5%, a slowdown from the prior month’s 0.7% advance but 0.1% warmer than expected. Taken together, the saving rate - often seen as a barometer of consumer expectations - inched lower, to 6.2% of disposable income. Consumers are less likely to raid the piggy bank in times of economic uncertainty. But while consumer expectations are improving (see UMich, below), inflation appears to be the heavier drag on savings. “Inflation continued to erode households’ purchasing power as real disposable income fell 0.4%,” writes Lydia Boussour, Chief U.S. financial economist at Oxford Economics. “As a result, households dipped into their savings to finance their spending as the personal savings fell to 6.2% in March - the lowest level since December 2013.” Speaking of the “I” word, the PCE price index, the Fed’s preferred inflation yardstick, indeed suggests at spending acceleration and savings depletion can be at least partly attributed to the rising cost of essentials, such as gasoline and food. Stripping away food and energy, the so-called “core” PCE index steadied (USPCE2=ECI) , growing at 0.3% from last month and 5.2% year-on-year. But headline PCE (USPCEY=ECI) reflects real life, which includes gassing up the Dodge and putting meatloaf on the table. Those prices headed up, jumping to 0.9% on a monthly basis and to 6.6% from March 2021. So does this report budge the expectations needle regarding the Fed’s actions at the conclusion of next week’s policy pow-wow? “With inflation clearly in focus for policymakers, these data do not impact the Fed’s rate hike plans next week,” says Rubeela Farooqi, chief economist at High Frequency Economics. “We continue to expect a 50 basis point hike at the meeting.” The graphic below shows core PCE along with other indicators, and how altitude at which they continue to fly above Powell & Co’s average annual 2% inflation target: A major piece of the larger inflation puzzle is, of course, wage growth. Employment costs (USEMPC=ECI) accelerated at a faster-than-expected pace in the first three months of the year, according to the Labor Department. A 1.8% jump in the cost of benefits and a 1.2% rise in wages resulted in a net increase of 1.4%, coming in well above the even 1% average projection and gaining speed from the fourth quarter of last year. While this report also does little to budge Fed rate hike bets, “at the margin it makes a second 50 (basis point) hike in June more likely,” says Ian Shepherdson, chief economist at Pantheon Macroeconomics. “After that, all bets are off, and the pace of tightening could easily be slowed by the meltdown in the housing market, now in its early stages, and the coming rapid decline in inflation.” Separately, midwest factory activity has lost steam this month. The Chicago purchasing managers’ index (PMI) (USCPMI=ECI) slid by 6.5 points in April to deliver a reading of 56.4, disappointing consensus by 5.6 points. A PMI reading over 50 indicates monthly expansion. While this series is more volatile than the national average, it nevertheless bodes ill for the Institute for Supply Management’s U.S. PMI report due on Monday, which analysts expect will show a nominal increase to 57.8. “Overall, manufacturing output continues to expand but supply network dislocations and input shortages, which may intensify in the near term, are a downside risk for the sector,” Farooqi adds. Lastly, the University of Michigan released its final take on Consumer Sentiment for April (USUMSF=ECI) , which was a bit less sunny than originally reported, having risen to 65.2 from March’s 59.4 print, a shade lower than the 65.7 “advance” reading. Still, it should be noted that both “current conditions” and “expectations” components are below their lowest point immediately following the pandemic shutdowns. The monthly increase can be attributed almost entirely to greater expectations, “with gains of 21.6% in the year-ahead outlook for the economy and an 18.3% jump in personal financial expectations,” says Richard Curtin, chief economist at UMich’s Surveys of Consumers. Short- and long-term inflation expectations held steady, at 5.4%, and 3.0%, respectively. Regarding the Fed, it’s on thin ice as far as consumers are concerned. The central bank’s “monetary policy now aims at tempering the strong labor market and trimming wage gains, the only factors that now support optimism,” Curtain writes. “The goal of a soft landing will be more difficult to achieve given the uncertainties that now prevail.” Wall Street was chasing Thursday’s rally with a steep and broad sell-off. The S&P 500 was queueing up for its fourth straight weekly decline. (Stephen Culp) U.S. STOCKS FALL EARLY WITH AMAZON.COM (1010 EDT/1410 GMT) Major U.S. stock indexes are lower in early trading Friday, led by drop in shares of Amazon.com (AMZN.O) , a day after it gave a disappointing forecast. Amazon’s shares are down more than 11% early and are the biggest drag on the S&P 500 (.SPX) and Nasdaq (.IXIC) , while the consumer discretionary sector (.SPLRCD) led declines among major S&P 500 (.SPX) sectors. Data earlier in the day added to the case for an aggressive monetary policy approach from the Federal Reserve. U.S. consumer spending rose more than expected in March amid strong demand for services, while monthly inflation surged by the most in 16-1⁄2 years. Stock investors have been worried about how fast interest rates will rise. Apple (AAPL.O) shares are near flat early on Friday despite the company’s disappointing outlook after the bell Thursday. Here is the early market snapshot: (Caroline Valetkevitch) BEARS HIGHEST SINCE FINANCIAL CRISIS LOWS (0905 EDT/1305 GMT) Pessimism over the short-term direction of the U.S. stock market surged to its highest level since 2009 in the latest American Association of Individual Investors Sentiment Survey (AAII). With this, optimism remains at an “unusually low level.” AAII reported that bearish sentiment, or expectations that stock prices will fall over the next six months, jumped by 15.5 percentage points to 59.4%. Pessimism was last higher on March 5, 2009 (70.3%). (Of note, the S&P 500’s Financial Crisis closing low occurred on March 9, 2009). This is the fourth consecutive week and the 22nd time out of the last 23 that bearish sentiment is above its historical average of 30.5%. “It is also the 12th time out of the last 15 weeks with an unusually high level of pessimism.” Bullish sentiment, or expectations that stock prices will rise over the next six months, fell by 2.4 percentage points to 16.4%. This is just the 35th time in the history of the survey that bullish sentiment is below 20%. (The survey was started in 1987.) Optimism is below its historical average of 38.0% for the 23rd consecutive week and is at an “unusually low level (below 27.9%) for the 13th time out of the last 16 weeks.” Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, collapsed by 13.1 percentage points to 24.2%. The drop puts neutral sentiment below its historical average of 31.5% for the first time six weeks. With these changes, the bull-bear spread widened to -43.0% from -25.0% last week : AAII noted that this week’s bearish sentiment reading ranks among the 10th highest in the history of the survey. With this, the bull-bear spread is the sixth most negative it has ever been. AAII added that “historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for bullish sentiment and for the bull-bear spread. Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500.” (Terence Gabriel) U.S. STOCK FUTURES RED AFTER WEAK RESULTS, INFLATION DATA (0845 EDT/1245 GMT) U.S. equity index futures are negative after the release of 0830 EDT inflation data in the form of the U.S. March core PCE price index. Month-over-month and year-over-year core PCE readings came in at 0.3% and 5.2% vs Reuters Poll numbers calling for 0.3% and 5.3%. That said, the futures were already under pressure given premarket losses in Apple (AAPL.O) , Amazon.com (AMZN.O) and Intel (INTC.O) . After the close on Thursday, AAPL warned on supply constraints , while AMZN and INTC delivered disappointing outlooks. Meanwhile, the U.S. 10-Year Treasury yield (US10YT=RR) , now around 2.89%, is attempting to end April above its 200-month moving average, now around 2.66%, for the first time since March 1989. A monthly resistance line from September 1981 is now around 2.85% - click here: Of note, with April trading drawing to a close, the S&P 500 (.SPX) and Nasdaq Composite (.IXIC) both ended Thursday on track for their biggest monthly percentage declines since March 2020. Meanwhile, the U.S. Dollar (=USD) is posting its biggest monthly rise since January 2015. Additionally, the SPX is on pace for its worst April since April 2002, while the Nasdaq is seeing its sharpest April loss since April 2000. Here is your premarket snapshot: (Terence Gabriel) FOR FRIDAY’S LIVE MARKETS’ POSTS PRIOR TO 0845 EDT/1245 GMT - CLICK HERE: premarket04222022 here AAII04292022 here Early US market snapshot here Personal consumption here Inflation here Employment costs here Chicago PMI here UMich here April Stocks here Closing market snapshot here (Terence Gabriel is a Reuters market analyst. The views expressed are his own)