Happy Friday!
Geopolitical tensions combined with strong economic and inflation data push stocks and bonds lower on “higher for longer” rate fears. DSG Momentum Indicator signaled Extremely Strong Momentum “alert” at the end of Q1. Drug shortages are the highest on record. Caitlyn Clark WNBA Fever!
#1 – Weekly Market Recap – The three major stock indices struggled this week with the Dow Jones Industrial Average down slightly -0.5% the S&P 500 declining -2.2%, and the Nasdaq Composite dropping -3.4% through Thursday’s close.
Stocks appear to be recovering some of the overnight losses resulting from Israel’s retaliatory strike on Iran. As we wrap up a down week for stocks, investor sentiment appears to be viewing company earnings with skepticism and caution on geopolitical issues.
The unexpectedly strong retail sales figures early in the week set a “good is bad” tone for investors as persistent consumer spending, elevated inflation, and robust employment have called into question the timing of anticipated interest rate cuts.
Comments on Thursday from Atlanta Federal Reserve President Raphael Bostic reinforced these fears when he stated, “I’m comfortable being patient. I’m of the view that things are going to be slow enough this year that we won’t be in a position to reduce our rates towards… the end of the year.” Some investors are even starting to question if the next move by the Federal Reserve could be a rate hike rather than a rate cut.
Thursday’s -0.2% decline in the S&P 500 marked the fifth consecutive day of losses for the flagship index – an occurrence seen just once in 2023.
#2 – DSG Momentum Indicator – For those of you who read our 2024 Q1 Review, you will have noticed we included output from the new DSG Momentum Indicator. The Momentum Indicator is a tool that we developed to analyze the price movement of virtually any publicly traded asset measured in “standard deviation bands” over rolling 5-year periods going back as far as there are recorded prices. The tool allows us to capture over a million data points in an instant and see a visual output of the price and momentum movement of assets.
As shown in the table below, we use seven classifications of momentum. Each classification corresponds to an asset’s recent price movement in the context of the previous 5 years, measured in standard deviations. For instance, if an asset’s price is 2 standard deviations above its 5-year rolling average, then it would be categorized as having “Extremely Strong” momentum and would be purple on the chart.
This same methodology applies to each of the classifications: Very Strong Momentum from +1 to +2 standard deviations (dark green), Strong Momentum from 0 to +1 standard deviation (light green) down to Extremely Weak Momentum which is more than -2 standard deviations below its rolling 5-year average (light blue).
As shown in the chart below, the DSG Momentum Indicator signaled that the S&P 500 Index entered Extremely Strong Momentum levels – which is more than 2 standard deviations above its 5-year rolling average – at the end of the first quarter. Because of this “alert signal,” we were not surprised to see stocks decline at the start of Q2. Historically, our research indicated that Extremely Strong Momentum can lead to periods of short-term weakness.
As we wrote in the Technical Outlook section of our 1st Quarter Review: “Short-term prudence may be required with the S&P 500 and select sectors entering “Extremely Strong” momentum in the final days of the 1st Quarter.”
#3 – Resilient Retail – In a positive sign for the U.S. economy (but negative sign for stocks and bonds), retail sales outpaced analysts’ forecasts in March. According to the Census Bureau, retail sales rose by +0.7% from the previous month, surpassing economists’ expectations for a +0.4% increase.
The March retail sales increase was the second consecutive month of growth following a surprising decline in January. February’s figures were also revised upward to a larger +0.9% increase.
The March data was even more impressive after excluding auto and gas sales, showing a +1.0% increase—well above the estimate of a +0.3% increase. Non-store retailers (aka “online” shopping) led the way with a +2.7% surge. The data showed that consumers are clearly favoring online shopping.
Source: Bloomberg (4/19/2024)
The upbeat retail figures conform with broader economic indicators suggesting a healthy start to 2024. Projections for first-quarter economic growth have been revised upwards, buoyed by a labor market that continues to outperform expectations.
In the sometimes-upside-down investment world, where “good news” can be viewed as “bad news,” the positive economic news sent chills down the spine of investors who fear that strong economic data could further push out interest rate cuts.
The continued strength of consumer spending, which accounts for roughly 2/3rds of the US economy, combined with persistently elevated inflation and strong employment are causing investors to question if the next move by the Federal Reserve could be a rate hike rather than a cut.
Source: CNBC
#4 – Drugs in Short Supply – According to US pharmacists, a growing number of drugs are in short supply.
Drug shortages are nothing new – supply issues have plagued the health care system for several decades, “largely due to market failures and misaligned incentives,” the Department of Health and Human Services stated in a paper published this month.
However, according to a survey by the American Society of Health-System Pharmacists (ASHP) and Utah Drug Information Service, there were 323 active medication shortages in the first three months of 2024. This is the highest number of shortages since the trade group began keeping records in 2001, surpassing the previous high of the 320 medication shortage in 2014.
“Most of the drugs in short supply are generic, older products and about half are injectable drugs that are hard to make,” Erin Fox, Associate chief pharmacy officer, University of Utah Health said. “Because the FDA says all generics are equal, the only way to compete is on price,” creating a race to the bottom that results in companies either halting production of the drugs or taking cost-saving shortcuts in quality, Fox said.
Because drug manufacturers make so little money on low-cost generic drugs, when there’s a shortage, the “companies are not facing any sort of hardship,” it’s only a problem for the patient, Fox added.
Meanwhile, insurance companies often only cover generic medications, putting a burden on patients unable to find a pharmacy that can fill the cheaper version of a drug. “One recommendation is to call your insurance company, and ask for coverage for brand names,” Fox advised.
Source: CBS News
Source: HHS
#5 – Caitlin Clark “Fever” – It’s official: Caitlin Clark, the former Iowa women’s basketball star and the NCAA’s all-time leading scorer, was selected as the #1 overall pick by the Indiana Fever in Monday’s WNBA draft.
As sports fans already know, Clark has been the shining star of college basketball – both men’s and women’s, over the last two seasons. The former Iowa Hawkeye player gained national attention her junior year when she set Big Ten single season records in points and assists. She also led the Iowa Hawkeyes to their first ever National Championship game in 2023. As a senior this year, Clark became the most prolific scorer in NCAA history and led her team to back-to-back National Championship games.
A record 18.7 million viewers watched the Hawkeyes fall to an undefeated South Carolina team in this year’s National Championship game. According to ESPN, this was the first time in history that the women’s NCAA final game drew a larger TV audience than the men’s game. Caitlin is ultimately, “the record-breaking face of women’s college basketball,” ESPN wrote.
Clark will receive a four-year professional contract worth a total of $338,056 according to the rules established in the WNBA’s collective bargaining agreement. Clark was already one of the top college earners with multiple NIL (Name, Image and Likeness) agreements and she’ll carry those endorsements to the WNBA. According to On3, Clark’s final NIL valuation was $3.4 million, #1 for women’s basketball and #4 overall.
Strikingly, Clark’s WNBA salary is less than 1% of what her NBA counterparts will be making. Last year, the NBA’s 2023 #1 draft pick, San Antonio Spurs player Victor Wembanyama, signed a four-year deal totaling over $55 million.
The pay disparity is, in part, powered by the much greater revenue generated by the NBA compared to the WNBA. The NBA generates approximately $10 billion in revenue annually while the WNBA is projected to bring in about $200 million. “All told, about 40 percent of all NBA league revenue goes to players’ salaries, while the WNBA puts roughly 10 percent of all league revenue toward its players’ salaries,” according to an estimate from Devaid Berri, an economist a Southern Utah University who is the co-author of an upcoming book about women’s sports.
WNBA players are pushing to change their compensation arrangement and will have a chance to negotiate for a change in 2025. “We are not asking to get paid what the men get paid. We’re asking to get paid the same percentage of revenue shared,” said Las Vegas Aces player Kelsey Plum.
Source: Cincinnati.com
Source: Vox
Have a great weekend!
Denver & the DSGCA Team