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2020 Financial Markets Update

Week in Review: April 29, 2022

May 1, 2022

Recap & Commentary

Markets ended a volatile week lower as investors digested a slew of earnings reports, along with important economic data. Friday saw a particularly sharp selloff following reports from Apple and Amazon which raised concerns about persistent supply chain and inflationary pressures. Beyond earnings, investors continue to fret about inflation, monetary policy, fighting in Ukraine, and Chinese lockdowns. April’s -8.8% decline marked the worst month for the S&P 500 since March 2020, while the NASDAQ’s -13.3% decline was the index’s largest since October 2008.

Due to continued fighting in Ukraine, Indonesia, the world’s largest palm oil exporter, announced a ban on palm oil exports in an effort to protect the country from rising inflation and ensure enough domestic supply. The announcement was precipitated by soaring global vegetable oil prices that have risen 50% over the past six months, due in part to the disruption of Ukrainian sunflower seed oil exports, which account for ~50% of global supply. As those exports have dwindled, consumers have turned to other substitutes, driving prices for all vegetable oils higher. Indonesia’s ban will exacerbate already soaring food prices, placing additional upward pressure on global inflation as well as increasing the number of people faced with food insecurity.

In an effort to slow the spread of new Coronavirus cases in its capital, China imposed targeted lockdowns in Beijing, raising the specter of a full lockdown similar to the one implemented in Shanghai. Spreading lockdowns will further impact China’s economic growth as well as global supply chains.

Through Friday, 55% of S&P 500 companies had reported earnings, with 80% of those beating their consensus estimate.

Economic Commentary

U.S. economic activity (GDP) contracted at an annualized pace of 1.4% in 1Q22, down from the 6.9% growth recorded in 4Q21 and below the consensus estimate for 1.1% growth. The decline was driven by reduced government spending, net exports, and inventory drawdowns.  Notably, the main engine of economic growth, consumer spending, was positive, increasing 2.7%, along with business spending which rose 2.3%. Consumer spending on goods fell slightly, while spending on services accelerated, likely reflecting the continued normalization of spending patterns as COVID cases wane and related restrictions are loosened.

The Federal Reserve’s preferred measure of inflation, core personal consumption expenditures (PCE), rose 0.3% in March, in line with consensus expectations and unchanged from February’s rate.  Compared to a year ago, core PCE rose 5.2%, 0.1% slower than both the consensus estimate and February’s rate.

Consumer confidence ticked down slightly in March due to a slight deterioration in consumers’ views of their current situation, which was partially offset by a small improvement in future expectations. Interestingly, consumers’ views on the labor market deteriorated, even with recent data showing 11.3M job openings in February, or ~1.9 jobs for each unemployed individual.

Of Note

After initial reluctance, Germany dropped its opposition to an EU ban on Russian oil imports raising the likelihood that the 27-country bloc will pass a ban phasing out Russian oil imports, perhaps by the end of 2022.

S&P 500-3.3%
Small Caps-4.0%
Intl. Developed-2.3%
Intl. Emerging0.1%
U.S. Bond Market0.0%
10-Year Treas. Yield2.93%
U.S. Dollar2.0%
WTI Oil ($/bl)$104
Gold ($/oz)$1,897

The Week Ahead

  • April Employment Report
  • ISM Manufacturing
  • ISM Services
  • Weekly Jobless Claims

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