May 5, 2023

Weekly Market Commentary May 1st to May 5th 2023

In a week that had dozens of important economic data points released, a few stood out. In particular, the FOMC rate decision, the ISM Manufacturing and Services Indexes, and Non-Farm Payrolls for the month of April.

Leading off the week was the Institute for Supply Management (ISM) Manufacturing Index registering 47.1 in April, above the estimate and the prior month, but below 50.0 and contracting for a sixth consecutive month, albeit at a slower rate. Only three of the ten sub-indices expanded during the month, while only five of the eleven industries reported growth during the month.

Midway through the week brought the ISM Services Index, expanding for the fourth consecutive month and slightly ahead of the estimate. The index increased from 51.2 to 51.9 in April. Six of the ten sub-indices expanded during the month, while fourteen of the seventeen industries reported growth during the month.

The most anticipated news came on Wednesday when the Federal Reserve voted unanimously to increase the Fed Funds rate by 25bps to a range of 5.00%-5.25%. However, they implied we are close to the terminal rate and a potential pause in hikes is possible. This was despite growing concern over the soundness of the U.S. banking system. Both the 2-year and 10-year treasury yields declined after the announcement.

Friday wrapped up with key employment data, with Non-Farm Payrolls increasing by 253k in April and well above the estimate. The unemployment rate declined to 3.4% also ahead of consensus. The labor force participation rate was unchanged at 62.6% and remained near post-Covid highs. Year-over-year wage growth increased from 4.2% to 4.4%, signaling a continued tight labor market and reason for the FOMC to remain data dependent as wage growth continues to contribute to inflation.

In the fixed income markets, the 10-year Treasury opened the week at 3.56% and closed the week down slightly at 3.43%. Expect continued volatility in interest rates next week with both consumer and producer price inflation on the docket. The inversion between the 2-year and 10-year Treasury declined during the week to -48bps, from -58bps.

The S&P 500 opened at 4,169 and declined through Thursday, until a strong employment report and solid earnings from Apple led a rebound for the week, closing almost unchanged for the week at 4,136.

Next week’s releases include CPI- Consumer Price Index and PPI- Producer Price Index.

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