Bitcoin to Dominate Sentiment

New Quarter... Consolidation

KR Opinion

At the start of each month, particularly at the beginning of a quarter, I forecast what's expected to happen. My latest YouTube video detailed the longer-term outlook for various markets. The equity markets, interestingly, seem to maintain a positive trend but are expected to become range-bound in the upcoming months of Q2.

Although there are still potential gains, I'll explore these further in the commentary below. For a more detailed analysis, I recommend watching my YouTube channel, where I've spent an hour discussing these nuances. To summarize, the equity markets may move sideways or slightly upwards in April, with a minor peak possibly occurring within the next few weeks.

However, any downturn is expected to be limited, at most 5 to 7% below current levels. Despite this, the markets have strong underlying support, and the general upward trend on a quarterly basis is likely to continue, suggesting higher prices into Q3 and beyond.

Despite the Personal Consumption Expenditures (PCE) index showing a year-over-year increase of 2.8% last Friday, when markets were closed, this did not significantly impress market participants. Interest in bond selling persisted. A critical factor to monitor will be the 10-year securities, especially if they surpass 4.33%.

Another significant point is the USD/JPY exchange rate, currently at 1:51, with projections suggesting a move to 152-153. A rise above 155 could prompt the Bank of Japan to intervene to support the yen, potentially leading to U.S. Treasury sell-offs to raise capital.

As we enter Q2, following a robust Q1, it looks like the momentum is set to continue, albeit with a potential for slight consolidation of the Q1 rally. This scenario indicates a healthy market environment. In the WaveTech database section, I'll discuss potential rotations that could provide further insights into market direction.

Looking back on Monday’s Action

Monday's trading session closed on a predominantly negative note, marking the first day of trading for the new quarter after a robust beginning to the year for many stocks. This shift contributed to a general bearish sentiment across the markets. The decline was characterized by a 2-to-1 margin of falling issues over rising ones at the New York Stock Exchange (NYSE) and the Nasdaq.

The Russell 2000 Index, after outperforming other major indices in the previous week, decreased 1.0%. The S&P 500 and the Dow Jones Industrial Average also declined, dropping 0.2% and 0.6%, respectively.

Conversely, the Nasdaq Composite saw a slight increase of 0.1%, buoyed by significant gains in certain mega-cap stocks and a strong performance in the semiconductor sector, with the PHLX Semiconductor Index (SOX) rising by 1.2%.

The broader market faced downward pressure largely due to a significant rise in market rates, with the yield on the 10-year Treasury note climbing 12 basis points to 4.33% and the 2-year note yield increasing by 10 basis points to 4.72%. This movement in Treasuries was a reaction to recent economic data that challenged the market's expectations regarding potential rate cuts by the Federal Open Market.

Committee (FOMC). Notably, the February Personal Spending and Income report, released on a non-trading day, presented persistent inflation figures, while the morning's ISM Manufacturing data came in stronger than anticipated.

Most S&P 500 sectors ended the day in the red, with eight out of eleven sectors posting losses. Notably, only one sector witnessed a decline greater than 1.0%. The real estate sector, sensitive to rate changes, was the most affected, dropping 1.8% due to the shifts in Treasury yields.

On the other hand, the communication services sector, led by gains in Meta Platforms and Alphabet, advanced by 1.5%, showcasing the impact of individual stock performances on sector gains.

Additionally, the energy sector emerged as one of the day's best performers, registering a 0.8% increase. This rise was supported by positive movements in Chevron and Exxon Mobil shares and rising commodity prices.

West Texas Intermediate (WTI) crude oil futures closed 0.8% higher at $83.94 per barrel, and natural gas futures surged 5.1% to $1.85 per million British thermal units (MMBtu), reflecting a favorable trend for energy commodities.

Reviewing today's economic data:

- The S&P Global US Manufacturing Index fell to 51.9 in the final March reading, down from 52.2.

- The March ISM Manufacturing Index registered at 50.3% (KR Forecast consensus 48.5%), increasing from 47.8% in February. This marks the first time the index has risen above 50.0% since September 2022, indicating that the manufacturing sector is expanding.

- The main insight from the report is that it outlined all the reasons the Federal Reserve believes it can wait before reducing interest rates: business activity is growing, prices remain high, and employment conditions are still relatively favorable.

- Total construction spending dropped by 0.3% month-over-month in February (KR Forecast consensus 0.6%) after a steady 0.2% decline in January. Total private construction remained unchanged month-over-month, whereas total public construction decreased by 1.2% month-over-month. On an annual basis, total construction spending increased by 10.7%.

- The critical point from this report is that new single-family construction continues to be a crucial support for overall construction spending. However, the increase in February was insufficient to counteract a significant drop in nonresidential spending across both private and public sectors.

Looking ahead, the economic calendar for Tuesday includes February Factory Orders and the February JOLTS - Job Openings, scheduled for 10:00 ET.

WaveTech Database