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2020 Financial Markets Update

Week in Review: March 25, 2022

Recap & Commentary

Equity markets ended the week higher with the S&P 500 rising almost 2% following very strong price action last week. Conversely, bond markets remained under pressure as investors contend with inflation and a hawkish Federal Reserve. Notably the U.S. Aggregate Bond Index is off to its worst ever start to a year, down -6.9% YTD. The U.S. 10-Year Treasury yield ended the week at 2.49%, up 34 basis points on the week.

Fed members dominated the headlines this week, as the market’s attention appears to shift from geopolitical tensions to monetary policy. Comments were largely consistent among members, with all in agreement on need to bring inflation down from its currently elevated level. Fed Chair Jay Powell started the week off on a hawkish note, stating that he anticipates the Fed will begin to shrink the balance sheet at the upcoming May meeting and that a 50bp hike may be appropriate. Powell’s hawkish sentiment was echoed by other Fed speakers throughout the week, including by noted hawk and voting member Jim Bullard, who stated that the Fed should move aggressively to get inflation under control. Even Neel Kashkari, one of the Fed’s more dovish members, said that he expects seven rate hikes this year.

Despite all the talk of aggressive policy action, Fed members remain consistent in their opinion that the U.S. economy is strong and that they see little chance of a recession occurring in the near-term.

Economic Commentary

New and pending home sales both fell in February. New home sales fell for the second straight month and pending home sales fell for the fourth consecutive month, as buyers are deterred by high prices, record low inventory, and rising mortgage rates.

Durable goods orders declined in February at a slightly faster pace than expected. Core durable goods orders also fell – marking the first decline in core durable orders since February last year.

Both the Manufacturing and Services PMI, as measured by IHS Markit, came in above expectations and prior levels. Both measures are sitting firmly in expansionary territory, at 58.5 and 58.9, respectively, with a reading above 50 indicating expansion..

Consumer sentiment declined further in March with the University of Michigan Sentiment Index falling below the decade-low level reported in February. Both the current conditions and future expectations indexes deteriorated from February’s report, as inflation and the war in Ukraine continue to weigh on sentiment. Roughly one third of consumers expect their financial position to worsen over the next twelve months, the highest level recorded since the survey’s creation in the 1940s.

New weekly jobless claims declined to 187,000, the lowest level since 1969. Falling claims is a positive economic data point.

Of Note

Rental prices reached a new all-time high in February, with the median national monthly rent now at $1,792 according to realtor.com. The cost of rent is up 17% over the past year and February’s increase marked the seventh consecutive month of double-digit percent increases.

S&P 5001.8%
Small Caps-0.4%
Intl. Developed0.3%
Intl. Emerging1.2%
Commodities5.3%
U.S. Bond Market-1.1%
10-Year Treas. Yield2.49%
U.S. Dollar0.6%
WTI Oil ($/bl)$113
Gold ($/oz)$1,955

The Week Ahead

  • March Employment Report
  • PCE Inflation
  • JOLTs Job Openings
  • ISM Manufacturing
  • ISM Services
  • Weekly Jobless Claims

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