Expect chop, chop, and more chop -Cresset

EXPECT CHOP, CHOP, AND MORE CHOP -CRESSET (1200 EDT/1600 GMT)

2022 was a year when markets reacted to higher rates.

However, Jack Ablin, chief investment officer and founding partner at Cresset, believes 2023 and 2024 will be years when fundamentals, like economic growth and profits, will feel the effects of one of the most aggressive rate hiking programs since 1980.

What does this mean for the market?

Ablin notes that the S&P 500 derives its value from earnings and interest rates. One-year-forward earnings is the denominator of the PE ratio and the 10-year, BBB bond yield drives the multiple.

He adds that as 2023 dawned, investors anticipated earnings growth of a little more than 3% for the year. Since then, however, he says that the profit picture has deteriorated with analysts now penciling in a 2.3% fall in profit growth this year on weaker growth and margins.

At the same time, the U.S. 10-year Treasury yield has retreated on similar concerns. Its yield has pulled back from around 3.8% to 3.4%, helping to offset the earnings decline.

With this, he says that the market’s single-digit gain so far this year squares with Cresset's S&P 500 valuation model, begging the question: Where do we go from here?

Ablin's answer is that "today's return is currently situated at our year-end target, suggesting sideways trading for most of the rest of the year."

He adds that "the stock market's direction will depend on inflation, interest rates and earnings growth. From our vantage point, a choppy sideways market will likely characterize the remainder of 2023."

(Terence Gabriel)

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RIGHT SAID FED: PPI COOLS, JOBLESS CLAIMS RISE (1055 EDT/1455 GMT)

A data duo from the Labor Department glided in like Fred and Ginger on Thursday, waltzing to the tune the Federal Reserve wants to hear - price growth is cooling and the tight labor market is showing some cracks.

Final demand (business-to-consumer) producer prices (USPPFD=ECI) cooled more than expected in March.

On a monthly basis, the producer price index (PPI) fell in March by 0.5%.

Year-on-year, headline PPI shed a remarkable 2.2 percentage points to 2.7%.

So-called core PPI - which excludes food, energy, and trade services - posted a nominal monthly increase of 0.1% from February and rose 3.6% year-on-year. That figure is nearly half the annual core PPI reading of March 2022, when Powell & Co fired the opening salvo in its war on inflation by hiking the Fed funds target rate for the first time since 2018.

Digging deeper, a sizeable 0.6% monthly rise in food prices was offset by a whopping 6.4% decline in energy goods, and a welcome 0.3% drop in services.

"Easing supply chain conditions and slowing momentum in demand have brought supply and demand into better balance, pushing producer prices sharply lower in March," says Matthew Martin, U.S. economist at Oxford Economics. "We expect the bite from the Fed's previous rate hikes will further reduce business and consumer demand, pushing producer price inflation lower throughout the rest of the year."

Intermediate demand, or business-to-business PPI, showed monthly declines of processed and unprocessed goods of 1% and 5%, respectively.

On an annual basis, intermediate PPI for processed goods was down 1%, while raw material prices plunged 17%.

Coming on the back of Wednesday's steeper-than-expected cooldown of headline CPI and last Friday's wage growth data, March indicators are three for three - inflation is headed in the right direction, inching ever closer to Powell & Co's average annual 2% target:

Next, the number of U.S. workers filing first-time applications for unemployment benefits (USJOB=ECI) ticked higher last week, rising 4.8% to 239,000.

While this marks initial jobless claims' 10th week above the 200,000 level, the bottom end of a range associated with healthy labor market churn, it has yet to reflect the surge in announced job cuts in recent months reported by Challenger, Gray & Christmas.

"(The data) chimes with the surge in layoff announcements recorded by Challenger; total layoffs announced in the first quarter were the highest since 2005, excluding the initial Covid hit and the financial crisis," writes Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics.

"Jobless claims lag layoff announcements, so we expect a further rise in claims over the next few months, helping to drive payroll growth to zero by mid-year," Clancy adds.

Ongoing claims (USJOBN=ECI), which are reported on a one-week lag, edged 0.7% lower to 1.810 million, a hair below the 1.814 million consensus, but above the 1.7 million pre-pandemic level.

Despite the Fed-pleasing data, financial markets are still pricing in a 25 basis point hike to the Fed funds target rate when the FOMC convenes next month, but it's less of a sure thing.

There's still roughly a one-in-three possibility that the Fed will press the pause button, according to CME's FedWatch tool.

(Stephen Culp)

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US STOCKS RIPE FOR A SHORT SQUEEZE (1022 EDT/1422 GMT)

As U.S. stocks have climbed 7% from their March lows, some stocks have become "more crowded and more squeezable," said S3 Partners.

On top of the list of S3's most squeezable U.S. stocks were Coinbase COIN, used car retailer CarMax Inc KMX, videogame retailer and meme stock GameStop GME, bitcoin investors and software company MicroStrategy MSTR and theater chain AMC Entertainment AMC.

Recent unrealized losses are the primary driver for a stock to be squeezed, the analytics firm said.

Top 10 stocks on S3 Partners' list are:

(Medha Singh)

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WALL STREET MOSTLY EDGES UP EARLY, LED BY NASDAQ (0950 EDT/1350 GMT)

Major U.S. stock indexes are mostly higher in early trading Thursday, with Nasdaq IXIC leading the way up along with tech-related shares. The Dow DJI is roughly flat.

Investors are digesting the morning's economic data including a report showing the number of Americans filing new claims for unemployment benefits increased more than expected last week. A separate report showed moderating producer prices in March.

Stocks ended lower on Wednesday after minutes from the last Federal Reserve meeting underscored concern about banks and liquidity.

The S&P 500 communication services sector S5TELS is up 1.5%, while S&P tech S5INFT is up 0.6%.

Here is the early U.S. market snapshot:

(Caroline Valetkevitch)

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S&P 500 INDEX: TRENDLINE MORE LIKE FLY PAPER (0900 EDT/1300 GMT)

On Friday March 31, the S&P 500 SPX ended slightly above the resistance line from its January 2022 record high.

However, since then, that line has been acting more like flypaper: