Week in Review: March 24, 2023

March 27, 2023

Recap & Commentary

Markets ended the week higher, following the US Federal Reserve’s highly anticipated meeting. The positive returns came despite continued concerns related to turmoil in the banking sector. As was generally expected, the Fed raised rates by 0.25%, in its attempt to balance the need to fight inflation without further inflaming concerns about a broader banking contagion.

With respect to future rate hikes, the Fed’s updated “dot plot” was unchanged, showing the Fed Funds rate ending the year at 5.1%. Market expectations, however, have changed significantly since the collapse of Silicon Valley Bank (SVB), and are now pricing in four rate cuts to end the year at 3.75-4.0%.

At his press conference following the meeting, Fed Chair Jay Powell stressed that the actions taken by the Federal Reserve and US Treasury Department in the immediate aftermath of SVB’s collapse demonstrated that “all depositor’s savings and the banking system are safe.” With respect to monetary policy Powell acknowledged that were it not for the recent turmoil in the banking sector, the Fed would have likely pursued a more aggressive rate hike as recent inflation and labor market data had been “stronger than expected.”

Economic Commentary

Existing home sales jumped 14.5% in February, the first increase in 13 months and fastest pace since July 2020. New home sales increased for the fifth consecutive month, up 1.1% in February. While new home sales have moved up from their cycle low last July, they remain subdued and are running below their longer-term trendline, with sales down 19.0% from a year ago. While lower mortgage rates in early 2023 likely incentivized potential homebuyers in both markets, prices of existing homes have come down relative to new homes, spurring a greater pickup in demand for existing homes.

According to S&P Global, US manufacturing activity edged up in March to a five-month high. Though it remained in contraction territory, the series benefitted from a renewed rise in production and a softer fall in new orders. Services activity rose to its fastest reading since April 2022, boosted by new orders which increased for the first time since last September.

Durable goods orders fell 1% in February, due to a decline in orders for civilian aircraft and new cars. Excluding transportation, durable goods orders were unchanged. On a year-over-year basis, orders were up 2.3%, marking the smallest increase since 2020, however, business investment rose for the second month in a row in a sign the industrial side of the economy is still growing.
Weekly jobless claims fell 1K to 191K, contrary to the consensus of a 6k increase. The four-week average of claims slipped by 250 to 196,250. This level is close to pre-pandemic and historic lows. The unexpected dip in claims suggests March could see another month of solid job growth.

Of Note

On the heels of TikTok’s CEO Shou Chew testifying before Congress, Utah became the first state to enact laws limiting how persons under 18 can use social media. As part of the bill, minors will need the consent of a guardian before joining social media platforms, advertisements are banned for those under 18, and a curfew will be imposed.

Market Indices (As of 03/24)

S&P 500 1.4%
Small Caps .52%
Intl. Developed 1.53%
Intl. Emerging 2.17%
Commodities .51%
U.S. Bond Market .52%
10-Year Treas. Yield 3.38%
U.S. Dollar -0.6%
WTI Oil ($/bl) $69
Gold ($/oz) $1,981

The Week Ahead

  • PCE Inflation
  • Personal Income & Spending
  • Consumer Sentiment
  • Pending Home Sales
  • Weekly Jobless Claims

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