Daily Brief - Stocks Up, Spirits Down

TLDR: While the S&P 500 dances at record highs, the latest consumer sentiment data from the University of Michigan tells a less jubilant story - it's a classic clash between consumer confidence and stock market cheerfulness.

Despite a slumping consumer sentiment that dropped significantly to 67.4 from a previous 77.2, the S&P 500 has not only recovered to highs but also boasts a robust 10% gain for the year.

The rebound in stock prices seems to draw strength from a solid earnings season and easing interest rate concerns, with Federal Reserve Chair Jerome Powell indicating no imminent rate hikes and even potential cuts on the horizon.

Meanwhile, consumers are bracing themselves for higher costs, adjusting their inflation expectations to 3.5% for the upcoming year, up from 3.1%. This adjustment in expectations could be a reaction to persistent inflationary pressures, contrasting sharply with the optimism currently permeating Wall Street.

As stocks surge and consumer spirits sag, the question arises: which indicator will prove to be the true harbinger of economic trends ahead? Is Wall Street's exuberance justified, or is Main Street's pessimism a cautionary bellwether?

Scenario Spotlight: ⚠️ Potential volatility ahead

The chart above displays the median 6-month response from the S&P 500, based on data from the past 12 instances where the UMich Consumer Index fell 10 points.

Market Movers: Sector Standouts

Here are the best and worst performing S&P sectors on a 1 month horizon, following previous 10 point drops in the UMich index:

Top 3 Performing Sectors

1. S&P Energy - Return: 1.57%
2. S&P Real Estate - Return: -0.11%
3. S&P Telecom - Return: -0.60%

Bottom 3 Performing Sectors

1. S&P Materials - Return: -3.90%
2. S&P Consumer Discretionary - Return: -3.75%
3. S&P Financials - Return: -3.15%

Earnings Spotlight: Petrobras reports tomorrow

In its recent financial report, Petrobras posted mixed results. While revenues rose to $23.3 billion, surpassing expectations due to higher oil prices, earnings per ADS fell short at 52 cents, impacted by currency effects and increased lifting costs. The firm benefited from a significant rise in the average sales price of oil in Brazil, which surged 64.4% year-over-year to $69.54 per barrel.

However, production declined by 4.5% quarter-over-quarter to 2,704 thousand barrels of oil equivalent per day, due to planned stoppages and production-sharing agreements, likely affecting December quarter revenues and cash flows.