Week in Review: April 21, 2023
April 24, 2023
Recap & Commentary
Markets ended the week mixed, with the S&P 500 little changed, as investors analyzed a spate of corporate earnings reports and the latest economic data. After a tumultuous 2022, followed by a sizeable rebound in the first quarter, investors appear to currently be taking more of a wait and see approach.
On the one hand, there is growing concern that the economy is poised to enter recession in the second half of the year. Should that occur, current corporate earnings expectations likely remain too high, leaving equity markets susceptible to further downside volatility. On the other hand, current interest rate forecasts show the Fed raising rates once more in May by 0.25% and then cutting rates by 0.25% in both November and December. The idea that the Fed is close to ending its rate hikes, coupled with expectations for additional slowing in inflation, could serve as a catalyst for equity markets to continue their rebound from last year’s lows. For the week, investors appeared content to simply let the earnings season unfold without taking any drastic actions. The same sentiment seemed to prevail in the bond markets, where the 10-Year Treasury yield was little change, rising just 0.06%.
Through Friday, 18% of S&P 500 companies had reported 1Q23 earnings. Thus far, 76% of companies have exceeded expectations. According to industry group FactSet, consolidated earnings growth for the quarter is expected to be -6.2%, which would mark the second consecutive quarter of negative earnings growth, and largest decline since 2Q20.
Economic Commentary
Housing starts ticked down 0.8% in March after rising in February for the first time in six months. Compared to a year ago, starts were down 17.2%.
Existing home sales fell 2.4%, the 13th decline in the past 14 months, as high mortgage rates and still-elevated home prices continue to weigh on demand. While the median existing home price rose from the prior month, it fell 0.9% from a year ago, its first notable year-over-year decline since February 2012.
According to S&P Global, US manufacturing activity edged up in March to 50.4, suggesting the sector expanded for the first time in six months. The improvement was driven by stronger growth in output and employment as well as a rise in new orders. The rise in new sales was minimal but signaled stabilizing demand across the sector. Services activity rose to 53.7 its fastest pace of expansion since last May. The continued rise was boosted by stronger demand and greater employment.
Regional manufacturing data was mixed with activity in New York unexpectedly increasing for the first time in five months, while activity in the Philadelphia area contracting for the eighth consecutive month, falling to its lowest level since May 2020.
Weekly jobless claims rose 5k, to 245k. The current level of claims is notably higher than the cycle lows recorded last September, and above the levels recorded in early 2020, indicating a pickup in layoffs.
Of Note
In a sign of growing nervousness about the US debt ceiling, spreads on one-year US credit default swaps, derivative instruments that act as insurance against the default of an underlying issuer, rose to their highest level since 2008.
Market Indices (As of 04/21)
| S&P 500 | -0.1% |
| Small Caps | 0.6% |
| Intl. Developed | 0.0% |
| Intl. Emerging | -2.0% |
| Commodities | -2.0% |
| U.S. Bond Market | -0.2% |
| 10-Year Treas. Yield | 3.58% |
| U.S. Dollar | 0.2% |
| WTI Oil ($/bl) | $78 |
| Gold ($/oz) | $1,994 |
The Week Ahead
- New Home Sales
- Pending Home Sales
- Core PCE
- Consumer Confidence
- Personal Income & Spending
- Durable Goods Orders
- Weekly Jobless Claims
