Friday, April 14, 2023
U.S. and International Equities
Stocks ended the week higher, bolstered by well-received inflation reports and a relatively good start to first quarter earnings season. Energy was a top performing sector for the third straight week on firmer crude oil prices, while cyclical value sectors materials and industrials also had good weeks as some growth sectors lagged. Financials had a positive showing this week on the back of Friday’s reassuring money center bank earnings. Developed international markets enjoyed another solid week as concerns about inflation and the economic outlook remain in the forefront of investors’ minds.
Fixed Income Higher
The Bloomberg Aggregate Bond Index finished slightly lower as bond prices declined while yields increased. In addition, high-yield corporate bonds, as tracked by the Bloomberg High Yield index, had a positive week despite ongoing concerns surrounding consumer health and credit conditions.
High-yield bond spreads widened 0.13% to 4.65% and yields were flat at 8.55% over the past week, as a weaker stretch of economic data refocused investors’ attention on growth risks, which produced a sharp decline in Treasury yields. High yield funds saw the largest retail inflows since November ($3.8 billion). Despite wider spread levels and renewed retail enthusiasm, high yield spreads are only around historical averages, so we don’t think the risk/reward is particularly attractive.
Commodities Mostly Higher
Energy prices finished higher for the week. Crude oil rode recent support from OPEC+ production cuts to a fourth straight positive week, after reaching a 15-month low four weeks ago. On the flip side, natural gas prices rebounded, reversing four consecutive weeks of lower closes. The major metals, gold, silver, and copper, ended the week mixed. The metals continue to show strength as technicals have turned positive, supported by a weaker U.S. dollar, China’s reopening, and signs of disinflation.
Economic Weekly Roundup
The Federal Reserve (Fed) minutes from the March meeting were released this week. Fed members believe a downturn is imminent, following the collapse of Silicon Valley Bank and Signature Bank early last month. Several Fed officials questioned whether to pause rate hikes and watch to see what happens within the banking system. That being said, they agreed to another rate increase given price pressures, the strength of the recent economic data, and the Fed’s commitment to bring inflation down to the 2% longer-run goal.
Consumer prices in March rose 0.1% from the previous month, the smallest monthly gain since December, fueling bets that the Fed is close to ending its rate-hiking campaign. In addition, March consumer prices rose 5% from a year ago, which represents the lowest annual growth rate since May 2021. Energy prices declined from the previous month as all major energy component prices fell in March. In addition, grocery prices declined in March, representing the first monthly decline in prices since mid-2020, finally easing some pressure off household budgets.
Wholesale inflation posted another surprise decline in March, the latest sign that sticky high consumer prices are beginning to loosen their stranglehold on the U.S. economy. Excluding volatile food and energy, core inflation rose 0.3% for the month which was unchanged from the 0.3% gain in February. The reading was up 4.3% on a 12-month basis, which was down slightly from the previous month.
Weekly Unemployment Report
Initial and continuing claims for the latest week came in above economists’ expectations for the second straight week, however continuing claims came in lower than the week prior. The labor market is expected to further loosen up during the second quarter as companies respond to slowing demand triggered by the Fed’s hawkish sentiment.
In addition to a busy week of earnings reports from corporate America, the following economic data are slated for the week ahead:
- Monday: NAHB Housing Market Index (Apr)
- Tuesday: Building permits (Mar), housing starts (Mar)
- Thursday: Weekly initial and continuing unemployment claims, existing home sales (Mar), leading indicators (Mar)
- Friday: PMI Composite (Apr), S&P Global PMI Manufacturing and Services (Apr)
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