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2020 Financial Markets Update

Week in Review: April 22, 2022

Recap & Commentary

Markets ended the week lower, rattled by comments from Federal Reserve Chair Jay Powell that all but confirmed the Fed will raise rates by 0.50% at its May meeting. Reflecting those concerns, the S&P 500 fell 2.8% on Friday, its second-worst daily loss since October 2020, returning the index to correction territory.

Speaking at an International Monetary Fund (IMF) panel, Powell stated that it is “essential” for the Fed to restore price stability, but that orchestrating a soft landing – raising rates without triggering a recession – will be “challenging.” On the topic of future rate hikes, Powell would not disclose his own views, but did say it would be “appropriate in my view to be moving a little more quickly,” before going on to say that a 0.50% increase will be “on the table” for the May meeting. Though markets were already pricing in a 0.50% increase for May, Powell’s apparent confirmation of such an increase resulted in a selloff in both equity and fixed income markets. Finally, when discussing the economic impacts of the current fighting in Ukraine, Powell noted that for the U.S. economy those impacts will be felt over time in the form of “further upward pressure on inflation.”

Through Friday, 20% of S&P 500 companies had reported first quarter earnings.  According to industry group FactSet, thus far 79% of companies have beaten their earnings estimates. For the full quarter, aggregate earnings are expected to increase 6.6% compared to 1Q21.

Economic Commentary

Housing starts rose slightly in March, reaching their highest level since 2006.  The increase was driven by multi-family housing, reflecting continued strong demand for rental properties, which saw 4Q21 vacancies fall to their lowest level since 1984. Noteworthy within the report was the record backlog of homes approved for construction, but yet to be started.

Mortgage applications fell for the sixth consecutive week, bringing the number of weekly declines to 10 over the past 11 weeks.  Slowing demand was also reflected is single-family housing permits which fell 5% in March as would-be buyers reassessed their willingness or ability to buy a home with 30-year mortgage rates now above 5% for the first time since 2011.

Existing home sales fell nearly 3% in March, compared to February, and 4.5% from a year ago. Some of the slowdown was most certainly due to rising rates, but other factors like prices and inventory likely played a role. In March, the median price for an existing home reached a new record of  $375.3K, a 15% rise from a year ago. At the same time, inventory fell to 950K homes, just two months of supply at the current sales pace. Moving forward, housing data is likely to remain choppy as rising rates and record prices discourage some would-be buyers, while would-be sellers debate whether or not to sell in an attempt to profit from record prices or stay put in order to avoid having to buy their next house with a new mortgage at a presumably higher rate.

Of Note

The IMF lowered its 2022 global economic growth forecast from 4.4% to 3.6% citing a number of factors including fighting in Ukraine, lockdowns in China stemming from the country’s Zero-COVID policies, and surging inflation.

S&P 500-2.8%
Small Caps-3.2%
Intl. Developed-1.6%
Intl. Emerging-3.4%
Commodities-2.6%
U.S. Bond Market-1.0%
10-Year Treas. Yield2.90%
U.S. Dollar0.6%
WTI Oil ($/bl)$102
Gold ($/oz)$1,933

The Week Ahead

  • 1Q22 GDP
  • PCE Inflation
  • Durable Goods Orders
  • Consumer Confidence
  • New Home Sales
  • Pending Home Sales
  • Personal Spending & Income
  • Weekly Jobless Claims

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