Market Update

All major U.S. equity markets finished the week higher as Congress passes a U.S. debt deal. The House of Representatives passed the bill aiming to limit government spending until the 2024 election and prevent a potential U.S. default. The Senate approved the bill to suspend the nation’s debt ceiling on Friday.  A default could have had severe economic consequences as the U.S. credit rating would have been called into question. The fact that we avoided this scenario added stability to the markets. Pivotal payroll numbers released on Friday pointed toward more job openings and an increased number of individuals added to payrolls. The level of job growth the economy is experiencing at this stage in a recovery is almost unheard of. The combination of jobs and debt-deals sent markets soaring. 

◦ Dow Jones Industrial Average   -0.9% ◦ S&P 500   +0.3% ◦ Russell 2000   -0.3% ◦ NASDAQ   +3.6% Domestic equity markets finished the week mixed as investors anxiously awaited results from the Federal Reserve’s preferred inflation gauge, Personal Consumption Expenditures (PCE). Stocks performed well when considering inflation (as measured by PCE) came in hotter than the prior month. The Fed uses this data point to determine whether or not inflation is returning to its 2% goal. Additionally, former Fed chair Ben Bernanke publicly stated the labor market presents an ongoing issue due to the fact nearly two jobs exist for every one unemployed individual. It means employers must raise wages to attract workers – further propping up pricing pressures. Lastly, debt-ceiling drama remains unresolved and rating agencies are threatening to downgrade the U.S.’s credit rating. Stocks proved resilient this week in the face of challenging economic news.

All major domestic equity markets, aside from the tech-heavy NASDAQ, finished lower. The Federal Reserve reported tighter lending standards and continued decline in loan demand. In other words, fewer dollars are in circulation resulting in decreased consumer spending – on which our economy relies. The recent regional banking woes further incentivized banks to tighten credit access. U.S. Small Business Confidence fell this week on worries that economic conditions will not improve. Businesses are still reporting a shortage in workers meaning wage inflation may have room to grow. Monthly inflation numbers increased while annual inflation numbers eased, though not as much as analysts would like. Multiple key data points hit this week and few painted a clear picture of economic improvement, so equity markets dropped.

U.S. equity markets finished the week lower following the 10th consecutive rate hike from the Federal Reserve. The rate hike caused turmoil in the banking sector which led to one regional bank tumbling as much as 50% in a single day. Drops in the banking sector sparked recessionary fears and triggered selling across stock markets. Fortunately, other sectors of the market proved more resilient. Also contributing to equity declines was the fact that April jobs report showed stronger than expected job gains and an avergage hourly earnings increase. Both data points from the jobs report point toward higher income which the markets perceive as higher consumer spending and ultimately, higher inflation. The jobs report and the rate hike were large contributors to last week’s market declines.

Domestic equity markets finished the week higher. Earnings season kicked into high gear this week as many companies delivered first-quarter results. Major companies like Google and Microsoft beat earnings estimates. Since these companies comprise a large chunk of the S&P 500, their outperformance helped to boost the index as a whole. As we continue to follow the inflation narrative, Federal Reserve officials failed to commit to rate hikes at the next meeting. This would mean a pause to rate hikes and likely boost the S&P 500.

U.S. equity markets finished the week down. U.S. paychecks are now outpacing inflation leading to increased purchasing power on the part of the consumer. However, the recent wage growth comes at a time when American credit card balances are rising. According to earnings reports from Bank Of America, JP Morgan, and the like, first quarter (2023) spending is up 10.5% from this time last year. The more consumers utilize high-rate debt to address needs, the less they have to spend on wants which the economy relies on. The Federal Reserve’s Beige Book confirmed expectations that the U.S. economy is slowing. The Beige Book is published eight times per year and highlights econmic conditions within each Federal Reserve Bank District. The report noted tightening lending standards and flat consumer spending. The data supports rate-hike pauses at the next Fed meeting in two weeks.

U.S. equity markets finished the week higher as pricing pressures cool further. The Consumer Price Index (CPI), the Federal Reserve’s actual inflation gauge, inched lower to 5% (excluding food and energy the number is 5.6%). While recent data is still far above the central bank’s 2% target, inflation growth continues to drop from June’s 9.1% peak. Minutes from the FOMC’S March meeting showed the central bank is forecasting a mild recession starting in the second half of 2023. Important to note, stock markets climbed in the face of the Fed’s recession forecast. What does this tell us? The inflation narrative is still running the markets.

Domestic equity markets finished the week mixed as labor and manufacturing activity swayed stock markets. The Bureau of Labor Statistic’s (BLS’s) monthly labor report (JOLTS) showed 1.3 million jobs were removed from the economy. Remember, the Fed had two goals when it began rate hikes – to kill housing and cool the job market. Its rate hikes may finally be affecting the labor market meaning fewer hikes would be needed in the future. As a result, stocks responded well. Manufacturing activity showed contractions across the board which pulled equity markets in the other direction.

U.S. stock markets soared this week on positive inflation news. A key gauge of U.S. inflation rose by less than expected and consumer spending stabilized, suggesting the Federal Reserve could be close to ending its most aggressive rate hike cycle in decades.The key inflation gauge referenced is called personal consumption expenditures (PCE), which is the Fed’s preferred infaltion gauge.PCE dropped from 5.3% in January to 5% in February, suggesting inflation data continues to move in the right direction. Consumer spending numbers came in better than expected. Since consumer spending comprises two-thirds of domestic economic output, a stabilized spending report boosted the outlook for both the economy and stocks.

•Markets     •S&P 500   +1.4%     •Dow Jones +1.1%%     •NASDAQ   +2.2%     •Russell 2000   +0.01% Domestic equity markets finish the week higher. The past week marked a big week for stocks. Why? The Federal Open Market Committee (FOMC) raised interest rates by another 0.25%, and stated it will not cut rates until 2024. Inflation and interest rate policy have run stock markets for a couple years now. For equities to outperform on a week with seemingly poor inflation-related news is big. The Fed remains constant on its message and the markets appear to recognize that consistency.  Helping the inflation narrative was the fact that U.S. median sales price of previously owned homes dropped for the first time since 2012. This signals to the Fed that the housing market is cooling and it’s interest rate hikes are working.