Performance for Week Ending 4.21.2023:
The Dow Jones Industrial Average (Dow) finished off 0.23%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 0.06%, the Standard & Poor’s 500 Index (S&P 500) dipped 0.10% and the Nasdaq Composite Index (NASDAQ) shed 0.42%. Sector breadth was mixed with 6 of the S&P sector groups closing the week higher and 5 closing lower. The Consumer Staples sector (+1.68%) was the best performer while the Communication Services sector (-3.05%) was the biggest laggard.
||Closing Price 4/21/2023
||Percentage Change for Week Ending 4/21/2023
||Year-to-Date Percentage Change Through 4/21/2023
*See below for Index Definitions
MARKET OBSERVATIONS: 4/17/23 – 4/21/23
The S&P 500 finished the week lower reflecting a mixed start to first quarter earnings season and economic data showing the economy continues to lose momentum. Fed speak during the week suggested the central bank is likely to deliver another 25-basis point rate hike at the conclusion of the May 3 FOMC meeting, raising worries that its effort to bring down inflation could push the economy into a recession.
Beige Book: The Fed’s Beige Book report—which draws from anecdotal information collected by the institution’s 12 regional banks—said the US economy stalled in recent weeks, with hiring and inflation slowing and access to credit narrowing. “Overall economic activity was little changed in recent weeks,” the Fed said in the report, which is typically published two weeks before each FOMC policy-setting meeting. “Several districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity” adding that “overall price levels rose moderately during this reporting period, though the rate of price increases appeared to be slowing.” The report marks a step down from the tone of the previous Beige Book which showed an economy that remained resilient though with growing doubts about the rest of the year. Despite the somewhat cautious tone, the market is still expecting the Fed to hike rates at next month’s FOMC meeting. According to Bloomberg’s World Interest Rate Probability tool, the odds of a 25-basis point increase at the conclusion of the May 3 gathering stand at 90%.
Fed Speak: Richmond Fed President Tom Barkin said he wants to see more evidence that US inflation is easing back to the central bank’s goal of 2%. Asked if the current level of rates around 5% risked hurting part of the economy, Barkin said “our economy works just fine with rates at this level.” Cleveland Fed President Loretta Mester signaled support for another rate hike to quell inflation while flagging the need to watch recent bank stress that could crimp credit and dampen the economy. New York Fed President John Williams said that while the banking sector has stabilized, the recent stress may make it more challenging for households and businesses to access credit. Atlanta Fed President Raphael Bostic told CNBC he favors raising rates one more time and then holding them above 5% for some time to curb inflation. Meanwhile, St. Louis Federal Reserve President James Bullard told Reuters that he favors a Fed Funds rate in the region of 5.5% and 5.75%, a level that would require two more rate hikes.
Q1 Earnings: While first quarter earnings reports have been mixed, overall results are tracking at a better than feared pace. Through Friday, 87 members of the S&P 500 have released results with 75% exceeding expectations. Aggregate earnings for the group are off 1.6% but still solidly ahead of the 8% decline expected at the start of earnings season. The Energy and Industrials sectors have posted the strongest results so far, while Technology and Materials have posted the weakest.
Data Roundup: After jumping nearly 14% in February, US existing home sales fell 2.4% to a seasonally adjusted annual rate of 4.44 million in March. Sales fell in all regions but the Northeast. Median home prices rose 3.3% month over month but slipped 0.9% on a year/year basis. Despite an increase in inventory, the available supply of homes translated into just 2.6 months of supply at the March selling rate, and well short of the 6.0 months considered to be a sign of a balanced housing market. Weekly jobless claims increased 5k to 245k in the week ended April 15, marginally above consensus expectations. The four-week moving average for claims, which helps smooth the week-to-week volatility, was flat at 240k. The Conference Board Leading Economic Index (LEI) fell 1.2% in March, the largest single-month decline since April 2020 and leaves the index at levels that have historically been consistent with a mild recession. March housing starts fell 0.8% after a revised 7.3% increase in February while U.S. building permits fell 8.8% in the month. The decline in starts was linked to a slowdown in apartment building construction.
The Week Ahead: It will be a busy week on the earnings front with 173 members of the S&P 500 scheduled to release results. Included amongst this group will be 14 companies from the Dow Jones Industrial Average. Focal points of the data calendar include the first reading of Q1 GDP, consumer confidence, and core personal consumption and expenditures – the Fed’s preferred inflation barometer. Other reports of interest include March new home sales, durable goods orders for March, initial jobless claims, and the Q1 employment cost index. The Fed speak calendar will be nonexistent as the central bank enters into its quiet period ahead of the May 2&3 FOMC meeting.
— By Michael Schwager, Chief Market Strategist, Managing Director
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
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