Join Tematica Research's Chief Macro Strategist, Lenore Hawkins, and Chief Investment Officer, Chris Versace, as they discuss and debate what's driving the market and the economy this week.

Last Week's Market

Stocks rebounded a bit Thursday to end a 3-day losing streak. The S&P 500 rose 1.2%, with 445 of its components gaining on the day, to leave it down 2.8% for the week. The Dow added 1.3%, leaving it down 2.2% on the week, and the Nasdaq rose 0.7% bringing it to a 4.6% loss on the week while the Russell 2000 gained 1.7%, leaving it down 4.4%. 

Economic recap 


Friday’s Retails Sales (incl Food) flat MoM (expected +1%) up 51.2% YoY  Excluding Food -0.3% MoM +46.1% YoY 
Control group sales, which exclude more volatile categories including food services, car dealers, and gasoline stations, dropped 1.5% in April after an upwardly revised 7.6% jump in March
Clothing-store sales dropped 5.1% after a 22.7% surge
Sales at non-store retailers, which include e-commerce, fell 0.6% in April
General merchandise store sales fell 4.9% and the value of purchases at sporting goods outlets dropped 3.6%


Inflation fears are overdone, but overvalued asset classes like equities need perfection to keep the ball rolling. The perception that the Fed is behind the curve, and is getting further behind, is never a very good thing for the market multiple. 

Pricey Market?


The Buffett Yardstick, or total market capitalization of the U.S. equity market relative to the overall size of the economy, now stands at 270%. 
Peak of Dotcom Mania, this measure only reached 188% so we are now over 40% more expensive than the most expensive stock market peak in history
That means that at today’s valuation, the stock market would need to fall 30% overnight in order to match the peak of what is widely considered the greatest bubble in modern history.
The bubble is also broader. The median price-to-sales ratio of S&P 500 Index components is now almost 75% higher than it was at the peak of the Dotcom Mania. In other words, unlike that previous bubble which was confined to just a subset, the current bubble encompasses a much greater proportion of the overall stock market.


The Bitcoin bubble is bursting as it slides below $50,000 as Tesla (TSLA)’s Elon Musk suspended vehicle purchases using the cryptocurrency.


Digital currencies are under pressure in general
Elon Musk hosting SNL just might have been a classic market top
Tesla stock peaked a while ago and is now down 30% since it announced its investment in Bitcoin three months ago


Economic Data to Watch This Week


Two regional Fed manufacturing indices for May (first look at May!) and April Housing Starts (the focus will be single-family)
Monday, May 17: May Empire State Manufacturing Index; May NAHB Housing Market Index; March Net Long-term TIC Flows.
Tuesday, May 18: April Housing Starts & Building Permits
Wednesday, May 19: Weekly MBA Mortgage Applications Index; Weekly EIA Crude Oil Inventories.
Thursday, May 20: Weekly and Continuing Jobless Claims; EIA Natural Gas Inventory report; May Philly Fed Manufacturing Index; April Leading Indicators.
Friday, May 21: April Existing Home Sales.


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Related: The Week Ahead: Are We at the Point Where Trillions Is Considered Relatively Small?