March 24, 2023

Weekly Market Commentary March 20th to March 24th 2023

It was a light week of economic data releases volume-wise, but the Fed spoke loudly and clearly, indicating its battle against inflation gets top priority. All eyes were on Fed Chair Jerome Powell on Wednesday as investors and volatile markets digested another round of short-term rate increases. Many thought a pause was in order as a way to soothe the raucous banking segment, but Powell insisted that inflation was still the main target and that everything else was secondary. Short-term rates were boosted another quarter point to 4.75 – 5.00% with the Fed suggesting the banking system was “sound and resilient”. It was an expected result and the markets simply took it all in stride. Another quarter point increase is priced in for May but after that, we may begin a period of “wait and see” while the current rates take hold and hopefully put downward pressure on inflation.

Elsewhere in the economy, we got contradictory results in the real estate market. Existing Home Sales in February were up 14.5% from January while New Homes Sales dropped 4.5%. Real estate transactions can be volatile in the winter months due to weather and currently volatile mortgage rates are making things less predictable.

Durable goods also disappointed, coming in at -1.0% when consensus called for +1.0%. But Capital Goods were up 0.2% when economists expected a 0.2% decline. For both Durable and Capital Goods, prior periods were also revised down by 0.5%.

On Friday, both S&P Global US Manufacturing and Services PMI’s for March came in much better than expected and what was delivered for February. Manufacturing hit 49.3 while consensus called for 47 and the prior month was 47.3; and Services came in at a red hot 53.8 when 50.3 was expected and February produced 50.6. Neither of these prints was good news for the Fed as they both are signs of a resilient economy, despite higher interest rates.

Lastly, and also likely causing the Fed more consternation, Weekly Initial Jobless Claims again came in slightly below 200k. As mentioned many times in this space the Fed would like to see the employment situation begin to weaken before they get comfortable pausing rate increases.

The equity markets were up for the week with the S&P 500 improving 1.4% to 3,971; the Dow Jones Industrials gaining 1.2% to 32,238; and the Nasdaq up 1.7% to finish at 11,824. US Treasury yields were mixed this week with the 2-year Treasury finishing at 3.77%, the 10-year at 3.37%, and the 30-year at 3.64%.

Next week brings the second revision of Q4-2022 GDP, Personal Income and Spending, PCE Inflation Data, and Pending Home Sales.

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