April 23, 2022

Weekly Market Commentary April 18th to April 22nd 2022

It was a light week on economic data as the anticipation of a possible 0.50% boost to short term interest rates looms on May 4th. It seems that most of the Fed governors have given their approval to the idea of possibly raising rates more aggressively and the markets certainly have this priced in. Look for the possibility of two to three 0.50% increases over the next three meetings as the Fed does its best to tackle inflation.

This week was mostly about the once red-hot housing market as Building Permits, Housing Starts, and Existing Home Sales for March all came in. Both Permits and Starts came in slightly better than expectations yet matched February’s numbers. Existing Home Sales was also slightly better than expected but down -2.7% from February (a rarity since February is generally the yearly low point in home sales due to unpredictable weather).

Elsewhere, Initial Jobless Claims roughly matched expectations at 184,000 which is the lowest in 54 years reflecting a very tight labor market and adding more fuel to the fire for the Fed to aggressively tighten.

And lastly, on Friday the S&P Global Manufacturing and Services PMIs came out with manufacturing beating expectations at 59.7 while services disappointed at 54.7. Both numbers indicate expansion and for reference, anything above 55 generally is seen as exceptional growth. Yes, high prices are slowing the economy but there are still plenty of signs of strength out there. Can the Fed lasso inflation with monetary policy and keep economic growth steady without incurring the dreaded “hard landing”? All eyes are watching.

In the markets, equities took a beating after the hawkish Fed rhetoric, with all three indices down for the week. The Dow Jones Industrials finished down -1.9%; the S&P 500 lost -2.7%; and the tech-heavy Nasdaq shed -3.8%. In fixed income markets, the Treasury rout continues with yields up across the board. The 2-year, 10-year, and 30-year US Treasuries finished at 2.70%, 2.90%, and 2.95% respectively.

Next week’s economic releases include the first Q1 GDP estimate, Durable Goods, New Home Sales, and PCE inflation data; along with the usual Jobless Claims and Consumer Sentiment Index.

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