Weekly Roundup

Equites rebounded hard this week, as the Fed lifted the veil of uncertainty surrounding monetary policy plans for the balance of 2022. The rallies came even amid the worsening situation in Ukraine as Russia's devastating attacks ramp up, data pointing to hot inflationary pressures, and questions over incremental supply chain issues as Covid spurs more lockdowns in China.

Also lending a helping hand was the reversal in several commodity prices, including oil, that had run up considerably as a result of Russian-Ukraine war. While that dialed back inflation expectations to some degree, it doesn't erase all the pressures that we've been seeing in the data that point to continued year-over-year gains in the forthcoming March inflation indexes. With the major market indexes jumping mid-single digits this week, they clawed back some of the year-to-date losses, but pronounced moves like this tend to result in overdone market conditions in the near-term. As we discuss below, the technicals point to the market being overbought, which confirms the notion this week was a relief rally.

While one uncertainty, the Fed, was removed, the larger question over the duration of the Russia-Ukraine war as well as new lockdowns in China remain. A new, potentially worrisome Covid variant is also making its way through Europe, as well, which has led to a rebound in hospitalizations. In short, we're not out of the woods yet, but hopefully there will be more clarity in the coming weeks. Even as earnings expectations for all of the above are re-jiggered, clarity could mean a return to more normalized market conditions, allowing the fundamentals and technicals to once again be the guiding path for stocks.

The AAP Portfolio

Save for our positions in NortonLifeLock (NLOK)  and Nucor (NUE) , nearly every other portfolio holding moved higher week over week. Some, like Airbnb (ABNB) , AMN Healthcare (AMN) , Marvell (MRVL) , and Nvidia (NVDA)  were stronger than others but with the uncertainty of the Fed removed, the vast majority of the positions followed the market higher this week. Shares of AbbVie (ABBV)  continued to move past our price target, while the shares of Union Pacific (UNP)  are on track to reaching theirs. As we discussed this week, the latest pushout in NortonLifeLock receiving regulatory approval for its announced acquisition of Avast weighed on the shares this week, likely making them essentially dead money for the coming months. We'll continue to rethink that holding and weigh it against other candidates that could increase the portfolio's cybersecurity exposure.

During the week, we made few moves with the portfolio ahead of Wednesday's Fed meeting save for the exiting of Starbucks (SBUX) shares, which broke key technical support levels. While that added to our cash levels, our goal is to continue to deploy that cash in the coming weeks in a combination of recently added holdings as well as fresh ones that will further diversify the portfolio and potentially bring more dividend payers into it as well.

Key Global Economic Readings

(Note: T is the most recent period, T-1 is the prior period's reading and T-2 is two periods back, the intent being to illustrate any trends)

The Economy

The week's economic data, including the February reports for the producer price index, retail sales, housing starts and industrial production, led the Atlanta Fed to boost its GDP model for the current quarter to 1.3% as of March 17, up from -0.5% exiting February and compared to 0.1% in late January. The manufacturing economy's rebound accelerated in February according to the latest Industrial Production data even though that report revealed motor vehicle assemblies fell 6.4% month-over-month due to continued supply chain woes.

Despite that drop, the February Retail Sales report indicated motor vehicle and parts dealer sales for February climbed 17.2% year-over-year, up from the 12.9% year-over-year increase in January. We see that pointing to continued progress on supply chains. Sticking with the February retail sales report, total retail and food service sales excluding gasoline stations rose 16.1% year-over-year, far better than the 0.2% month-over-month decline would indicate. We'd also note that February year-over-year increase accelerated from the 12.5% gain reported for January. What this tells us that so far, consumers have continued to spend even though prices paid started to move higher. With inflationary pressures rising further, particularly for gas prices, in March, we'll be looking to see if that ability to shake off rising prices impacts the consumer's ability to shop. We'll also be watching consumer credit data in February and March for signs consumers are packing on credit card debt in the near-term to help overcome those higher prices. If that's turns out to be the case, we could see further pressure on consumer spending several months out.

Digging deeper into the February retail sales report, February retail sales at food services and drinking places jumped 33% year-over-year, the second strongest category behind the 36.4% climb in gasoline stations. Clearly a positive data point for our shares of Chipotle Mexican Grill (CMG) . Other categories of strength in the report included building material & garden & supplies dealers accelerating to up 14.8% year over year, a positive for recently added United Rentals (URI) , and nonstore retailers (i.e., digital shopping) continued to grow at double-digits year-over-year.

Ahead of Wednesday's Federal Reserve meeting, the February producer price index, which rose 10% year-over-year and 8.4% excluding food and energy costs, set the stage for what Fed was going to announce. When we get the March Flash PMI reports next week, we suspect we'll be hearing more on rising input costs as well as firms looking to pass through them through to customers in the form of additional price increases.

Clearly the Fed is expecting that as well, given that it boosted interest rates by a quarter percentage point exiting its latest monetary policy meeting, and telegraphed it will do the same at each of the six remaining Fed policy meetings in 2022. Digging into the updated economic projections furnished by the Fed, we see the prospects for a few further rate hikes in 2023 as well. At the core of this is the Fed's tackling one of its central charges, targeting stable prices. While the Fed shared the U.S. economy is strong enough to take the Fed's medicine, it slashed its GDP forecast to 2.8% for this year, down from 4.0% in December. While we recognize the Fed is a cheerleader for the economy, we will continue to monitor economic data to be had that formulates the quarterly GDP figures. Should we see the signs of stagflation hitting -- a stalling economy with rising inflation -- the Fed could very well have to adapt monetary policy.

While oil prices moved lower week-over-week, erasing the sharp gains registered during the first half of March, they remain at levels well above those in January and March. We've commented on the pain at the gas pump, and concerns over it impacting consumer spending in the near-term, now Delta Airlines (DAL) warned of higher ticket prices. It could be the airline follows moves by Emirates, Japan Airlines, and AirAsia introducing surcharges on tickets to cover higher jet fuel costs.

As we shared in Friday's morning comments, we've seen similar moves of late by Uber (UBER), DoorDash (DASH), and others. Week-over-week, the average price for a gallon of gas in the U.S. moved lower by $0.06. Yes, that is a move in the right direction, the reality is it provides only the tiniest bit of relief compared to the 48% year-over-year increase that consumers and businesses are still dealing with. Given that, our view that consumers will increasingly turn to Amazon (AMZN) , Costco (COST) , and Walmart (WMT) remains unchanged, and it seems we're not alone given the nice moves in each of those shares over the last few weeks.

Chart of the Week: S&P 500 is Turning the Corner

It's been quite a week for the markets with a big reversal on Monday followed later in the week with three very strong days upward. The buyers have been mostly in control this week as a nearly 5% rally in three sessions was the best performance of that kind since November 2020. Yet, still, markets are still underneath the moving averages; the 50-day/200-day moving averages shown here. The recent death cross did not scare the bulls at all, and with a bullish shift in some indicators (like the Moving Average Convergence Divergence oscillator and Relative Strength Index shown at the bottom panes) we still see hope for the bullish case.

The downtrend since January as been broken as well, so that is a positive. If you look at the recent lows around 4120-4130 on the S&P 500 (this week and last) there is a case for a bottom at that level, and it would embolden the case for the bulls to create a new uptrend. What would that look like? A series of higher lows, higher highs. We don't really have that yet here, but a modest pullback on lower turnover would get you to that place. Note, the oscillators are very overbought, as of Thursday's close, not a time to get long the markets, hence a pullback seems to be in order. Note, at the circles we have seen overbought readings often and the market pulls back sharply, that is likely to happen again.

The Coming Week

On the heels of a few regional Federal Reserve manufacturing reports this week, next week brings another look at the domestic economy for February, but also the first look at how the U.S. and European economies faired during March. While the start of the Russia-Ukraine war is likely to have a modest impact on activity, we'll be focusing once again on supply disruptions and pricing comments in those reports. Given the outbreak of the war and its impact across a wide variety of commodity prices, we expect the input cost comments will point to further moves higher for the March consumer price index and producer price index prints. As painful as they may be for consumer spending in the coming months, we know the Fed's plan of action to combat inflation, which has removed at least one uncertainty from the market.

U.S.

Monday, March 21

• Chicago Fed National Activity Index February (9:30 AM)

Wednesday, March 23

• Weekly MBA Mortgage Applications (7:00 AM)
• New Home Sales - February (10:00 AM)
• Weekly EIA Crude Oil Inventories (10:30 AM)

Thursday, March 24

• Weekly Initial & Continuing Jobless Claims (8:30 AM)
• Markit Manufacturing & Services PMI (Flash) - March (9:45 AM)
• Durable Orders (Preliminary) - March (10:00 AM)
• Weekly EIA Natural Gas Inventories (10:30 AM)

Friday, March 25

• Pending Home Sales - February (10:00 AM)

International

Monday, March 21

• Germany: Producer Price Index - February

Wednesday, March 23

• Japan: Leading Indicators - January
• UK: Consumer and Producer Price Indices - February
• Eurozone: Consumer Confidence Indicator (Flash) - March

Thursday, March 24

• Japan: Markit/JMMA PMI Manufacturing (Flash) - March
• Eurozone: Markit Manufacturing & Services PMI (Flash) - March
• UK: CIPS Manufacturing & Services PMI (Flash) - March

Friday, March 25

• Japan: Consumer Price Index - March
• UK: Retail Sales - February
• Germany: Ifo Current Assessment and Business Climate - March.

The next week will be another relatively quiet one for quarterly earnings, but similar to what we heard from FedEx (FDX) late this week, we expect comments on Covid-19 variants, supply chain issues, inflationary pressures will be prevalent. Those same comments will continue to shape what we're likely to hear during the upcoming March-quarter earnings season. As we shared during the week, we continue to think we will see downward revisions in EPS expectations for the first half of 2022 as those factors are firmly baked into expectations.

In terms of the earnings reports, we'll be focusing on Nike (NKE)'s comments, particularly the balance between the re-opening in the U.S. and Europe vs. the recent lockdown in China. We're also rather curious to hear what it has to say about input cost escalation and its plans to fend them off. The business model at Adobe (ADBE) is similar to that at Alphabet  GOOGL , and as such we're anxious for it to report and confirm supply chain woes and rising input costs shouldn't have much if any impact on margins. With Trip.com (TCOM), we'll be looking for confirmation on the favorable TSA passenger data, and its comments should bode well for our shares of Airbnb (ABNB)  and Disney (DIS) .

We'll be looking for follow up to FedEx's comments around worker absentee rates as well as the degree to which rising costs are poised to hit margins when Darden Restaurants (DRI) reports. And when Jefferies (JEF) reports, the comments on its investment banking business and deal pipeline will be ones of interest given our shares of Morgan Stanley (MS) .

Here's a closer look at the earnings reports coming at us next week:

Monday, March 21

• Close: Nike (NKE), Tencent Music (TME).

Tuesday, March 22

• Close: AAR Corp. (AIR), Adobe (ADBE), Poshmark (POST).

Wednesday, March 23

• Open: Cintas (CTAS), General Mills (GIS)
• Close: KB Home (KBH), RH (RH), Trip.com Group (TCOM).

Thursday, March 24

• Open: Darden Restaurants (DRI), Jefferies (JEF), Kingsoft Cloud (KC).
• Close: Nio (NIO), Sprinklr (CXM)

At the time of publication, AAP was long  ABNBAMDAMZNAMNAAPLAMATBACHPTCMGCOSTDEDISGOOGLMRVLMSFTMSNVDASWKSURIWMTABBVCSCOFHONMANLOKNUEUNPUPS.