S&P 500: 3.48% DOW: 3.22% NASDAQ: 3.37% 10-YR: 3.49%
Last Week on WallStreet - April 1st, 2023
The first quarter of 2023 is officially in the books and has added to the now-long list of hectic quarters in recent memory. Despite an incredibly bumpy ride and a mini-banking panic, many areas of the market recorded strong gains.
Markets capped off the quarter with another winning week as economic data releases reported higher consumer confidence and moderating PCE inflation. These improved metrics drove hopes of a soft landing for the economy amidst the Federal Reserve's hiking cycle. Easing fear regarding weakness in the banking system also provided the necessary optimism to etch out broad-based gains.
Beneath the surface, all sectors of the S&P 500 finished the week higher indicating improved breadth in markets. An unusual mix of sectors led the way higher with Energy (6.3%), Discretionary (5.6%), and Real Estate (5.1%) posting solid returns. Defensive sectors such as Healthcare (1.5%) and Staples (2.3%) ended at the back of the pack.
Key Fed Inflation Guage Rose 0.3% in February, Less Than Expected
- The personal consumption expenditures price index excluding food and energy increased 0.3% for the month; slightly less than expected
- Including food and energy, headline PCE increased 0.3% monthly and 5% annually, compared to 0.6% and 5.3% in January
- The softer-than-expected data came with monthly energy prices decreasing 0.4% while food prices rose 0.2%.
- Goods prices rose 0.2% while services increased 0.3%
The key takeaway - Recent data reports have indicated the broad-based inflation trend is on the right track. Moderation in price increases seen over the past couple of months is exactly what the Fed, and markets, want to see. Although the pace of price growth has slowed materially, the inflation rate remains well above the Fed's target of 2% and there are still material risks to the upside from the labor market and shelter prices.
US Consumer Confidence Rises as Americans Shrug Off Bank Failures
- The consumer confidence index increased to 104.2 in March; up from 100.7 in February
- The survey's labor market differential, a gauge of if consumers think jobs are plentiful, remained high at 38.8
- Consumers' 12-month inflation expectations rose
- The survey showed more consumers planned to buy larger goods, such as motor vehicles and appliances, but pull back on discretionary expenditures
The key takeaway - The financial sector stress that briefly terrified markets didn't seem to bother consumers given Tuesday's improved reading. The primary reason being confidence is substantially driven by the state of the labor market and the perceived availability of jobs. The current strength in the jobs market has helped Americans remain confident throughout the banking turmoil in March. This metric provides a bastion of hope for the economy as a strong consumer can solve many economic problems.
Pending Home Sales Squeezed Out a Tiny Gain in February, as Mortgage Rates Jumped
- After a sharp gain in January, pending home sales rose just 0.8% in February, according to the National Association of Realtors
- Sales were 21.1% lower than February last year
- Regionally, sales moved higher month to month in every region except the West, where they fell 2.4%
- The average rate on the popular 30-year fixed mortgage started February around 6% and ended the month just over 7%
The key takeaway - As written previously, the drastic increase in mortgage rates in the past year has damaged the entire housing market. January saw an easing in rates leading to a spike in buying as Americans waiting in the wings for any deterioration in rates saw their chance. Those rates bounced back in February, stifling much of the momentum found in the previous month.
From the Waterloo Watercooler
A reporter for the Wall Street Journal, Evan Gershkovich, was arrested Wednesday in Russia for allegedly investigating military secrets for the US
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The Australian food company Vow said yesterday that it’s made a meatball from the extinct woolly mammoth