Week in Review: April 18, 2022

April 18, 2022

Recap & Commentary

Markets ended the holiday-shortened week lower as investors continued to fret about surging interest rates and inflation, and how the Fed intends to tackle the latter. In addition, 1Q22 earnings season officially began, giving investors an early read on how companies are coping with recent price surges and additional supply chain disruptions stemming from fighting in Ukraine.

According to Freddie Mac, the average 30-year mortgage rate exceeded 5% for the first time since 2010. A year ago, 30-year mortgage rates stood at 3.0% and were still just 3.1% at the end of 2021. On a $1M home, assuming 20% down and a 30-year fixed mortgage, an increase in rates from 3% to 5% increases the monthly principal and interest payment by $922.

Somewhat lost among the headlines was China’s ongoing efforts to stop the rapid spread of new coronavirus cases that are challenging the country’s zero-Covid policy. In Shanghai, the country’s financial hub, all 25M residents remained isolated in their homes following a lockdown that began on March 28.  Other areas, including large industrial centers, are also currently on lockdown, impacting both the country’s economic growth as well as global supply chains.

First quarter earnings season officially started, led by reports from a number of large banks. Through Friday, just 7% of S&P 500 companies had reported, with 77% beating their consensus earnings estimate, and 80% beating their revenue estimate. According to industry group Factset, aggregate S&P 500 earnings for 1Q22 are expected to increase 5.1% from 1Q21.

Economic Commentary

Inflationary pressures continued to build in March, with consumer prices (CPI inflation) rising 1.2% for the month and 8.5% compared to March 2021.  Gasoline prices, which have surged to record highs, accounted for over half the monthly gain. For those hoping that prices may be peaking, there were some glimmers of hope. Core CPI which excludes food and energy, rose just 0.3%, less than the 0.5% by which prices increased in February and which economist were once again expecting. The smaller gain benefitted from declining used vehicle prices which fell slightly for a second consecutive month.

Inflationary pressures for producers (PPI inflation) showed few signs of abating, as headline prices rose 1.4% for the month, and 11.2% compared to a year ago, a new record high. As earnings season unfolds, investors will get a better idea of the extent to which companies can continue to pass along higher prices.

Consumer sentiment surprised to the upside, rising to a three-month high. The improvement was driven almost entirely by consumers’ future expectations as their views on current conditions were little changed. Importantly, expectations for 1- and 5- year inflation remained unchanged at 5.4% and 3.0%, respectively.

Retail sales rose 0.5%, as consumers spent an ever increasing amount of money on fuel. Excluding those receipts, retail sales actually fell 0.3%. In a sign that higher inflation may be starting to weigh on other spending, online sales fell for a second consecutive month.

Of Note

According to various sources, American spend 6.1B hours preparing their taxes.  In 2021, the IRS received over 1,500 calls per second during filing season.

S&P 500 -2.1%
Small Caps 0.5%
Intl. Developed -1.1%
Intl. Emerging -1.3%
Commodities 4.8%
U.S. Bond Market -0.7%
10-Year Treas. Yield 2.83%
U.S. Dollar 0.7%
WTI Oil ($/bl) $107
Gold ($/oz) $1,977

The Week Ahead

  • Consumer Inflation (CPI)
  • Producer Inflation (PPI)
  • Consumer Sentiment
  • Retail Sales
  • Industrial Production
  • Weekly Jobless Claims

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