April 29, 2022

Weekly Market Commentary April 25th to April 29th 2022

Investors had a lot of information to digest this week. Most notably, Headline PCE in March was 1.1%, higher than expected. Year-over-year PCE is 6.6%. Both readings lend support for the Fed’s expected 50 basis point interest rate hike in May. Core prices, which strip out food and energy, detracted slightly from last month. Year-over-year that index went from 5.4% to 5.2%, a potentially positive sign that prices are slowing. The savings rate fell from 6.8% to 6.2% as inflation is decreasing household spending power. Eventually, these high prices will force consumers to cut back and lower household spending will temper inflation.

U.S. GDP unexpectedly contracted at a -1.4% annualized rate in Q1. Analysts had estimated growth of 1.1%. Strong domestic demand coupled with weak foreign demand led to a historically wide trade deficit, the quarter’s main GDP detractor. Consumer spending increased in the quarter by 2.7%. The pace of consumption growth is slowing, however, Consumer Confidence remained steady in March at 107.3 with many respondents noting short term plans to buy autos and major appliances.

New Orders for Durable Goods rose 0.8% in the month, less than the expected 1%. February’s orders were revised to -1.7% from -2.2%. Orders Ex-Transportation and for Core Capital Goods both exceeded forecasts coming in at 1.1% and 1.0%, respectively.
New Home Sales declined -8.6% in March with 763,000 units sold. Pending Home Sales were down -1.2%. The supply of homes increased to 6.4 months in March, up from February’s 5.6 months. Increased supply plus waning demand from rising mortgage rates should cool home prices eventually. At present the median home price is up 21.4 from this time last year.

All three equity indices finished down for the week. The Dow Jones Industrials finished down -2.5% while the Nasdaq was down -3.9%. The S&P 500 finished the week down -3.3%, completing its worst month since March 2020. In fixed income markets, Treasury’s finished pretty much flat for the week. The 2-year, 10-year, and 30-year US Treasuries remained at 2.71%, 2.90%, and 2.96% respectively.

Next week’s economic releases include ISM Manufacturing data, JOLTs Jobs Report, and Employment releases.

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