Market Commentary — April 24 2023

The major benchmarks finished mixed last week, with corporate earnings grabbing the spotlight from a relatively light calendar of economic data. One item of note, the CBOE VIX Index, a gauge of “fear” and volatility, hit its lowest level since late 2021, closing the week at 16.77. More on that later.

Looking at FactSet’s S&P 500 Q1 2023 Earnings Scorecard (with 18% of companies reporting results) 76% have reported positive earnings surprises and 63% have reported positive revenue surprises. But those figures don’t show that S&P 500 earnings are on pace for a decline of 6.2% this quarter, marking the largest earnings decline reported by the index since Q2 2020 (-31.6%).

Even with negative earnings growth, markets are treading water because everyone is expecting a Fed pivot on interest rates. Currently, the CME FedWatch tool is pricing in an 89% likelihood of another 25 bps hike at the May 3 meeting and then a pause thanks to the financial impact of the banking crisis and more favorable inflation data.

Thursday’s weekly jobless claims showed growing signs of weakness in the labor market. Normally this would be received as a positive, but are we finally at the point when bad news is actually bad again, forboding a recession?

Weekly claims rose a bit more than expected, but continuing claims jumped by much more than anticipated and reached their highest level (1.87 million) since November 2021. Housing data was also soft, with starts and permits slowing from February’s pace. Existing home sales fell, and YOY home prices dipped 0.9%, the largest decline in 11 years. The Fed appears to have succeeded in its effort to slow things down, the question is how much is too much? And why are investors so “chill” about the whole thing?

In ETF news, for those who were skeptical about single-stock ETFs, the group has accumulated nearly $1 billion in AUM since the first ones launched back in July of 2022. There are now 5 issuers involved in this segment: AXS Investments, GraniteShares, Innovator, YieldMax, and Direxion. While AXS was the first mover, Direxion—the index-based heavyweight in leveraged and inverse ETFs—has become the largest single-stock ETF issuer. Which stocks are investors using these vehicles to get exposure to? Tesla plays have roughly 2/3 of the assets.

Matt Tuttle is looking to recreate the success he had with the SARK ETF which was later acquired by AXS Investments along with Tuttle’s other funds. Tuttle was briefly employed by AXS after the acquisition but left the issuer after several months. His firm filed for two ETFs that will do many of the same things SARK and its sister fund the AXS 2X Innovation ETF (TARK) do, with some slight differences. Tuttle Capital also offers the Tuttle Inverse Cramer Tracker ETF (SJIM) and the Tuttle Long Cramer Tracker ETF (LJIM) which offer short and long exposure to the recommendations of Mad Money’s Jim Cramer.

And finally, given that the VIX seems to be losing its edge as a “fear monitor”, CBOE plans to launch a one-day version of the VIX, the CBOE 1-Day Volatility Index (VIX1D). Here’s the joke out there to share with your friends: the VIX is going through a mid-life crisis and is being replaced by someone younger (shorter dates) and hotter.

Have a great week everyone!

Jane Edmondson
CEO and Co-Founder

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EQM Indexes LLC is a woman-owned firm dedicated to creating and supporting innovative indexes that track growth industries and emerging investment themes. Co-founded by Jane Edmondson, a former Institutional Portfolio Manager with more than 25 years in the investment industry.

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