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2020 Financial Markets Update

Week in Review: March 3, 2023

March 6, 2023

Recap & Commentary

Markets ended the week higher, shrugging off concerns related to the release of ISM manufacturing data showing input prices jumped significantly in February. The increase initially inflamed concerns about how aggressive the Federal Reserve System will need to be in its efforts to corral inflation. Reflecting those concerns, interest rates jumped, with the 2-Year Treasury yield reaching 4.89%, its highest level since 2007, while the 10-Year Treasury yield surpassed 4.0% for the first time since last November.

By the week’s end, investors’ jitters had calmed, and markets had rebounded, due in part to comments by Atlanta Fed President Raphael Bostic, who said that despite recent inflation readings, he would be in favor of the Fed raising rates again by just 0.25% at its March meeting. Bostic’s comments helped assuage concerns that the Fed might raise rates by 0.50%, an idea that seemed unlikely just a month ago but had gained traction as of late. While taking solace in Bostic’s comments, markets seemingly discounted those made by Fed Governor Waller, who stated that in terms of lower inflation, “wishful thinking is not a substitute for hard evidence,” and that after seeing promising signs of progress, the Fed “cannot risk a revival of inflation.” Market volatility will likely remain elevated ahead of the Fed’s upcoming meeting as further economic data becomes available.

Economic Commentary

Manufacturing activity, as measured by industry group ISM, contracted for a fourth consecutive month in February, albeit at a slightly slower pace. Notably, prices paid rebounded to 51.3, marking the first growth in prices in five months. Recent economic resilience is seemingly putting renewed upward pressure on prices. The service sector continued its expansion in February, aided by strong new orders, suggestive of  continued strong demand.

Durable goods orders fell 4.5% in January, due to a decline in civilian aircraft orders. Excluding transportation, durable goods orders rose 0.7%, the largest increase in 10 months. On a year-over-year basis, headline and core orders rose 7.0% and 4.8%, respectively, marking the slowest pace since February 2021.

Pending home sales jumped 8.1% in January, far greater than the 0.9% consensus estimate. It was the second monthly increase, and the most since June 2020. Mortgage rates, coming off their peak levels seen in late 2022, have attracted more buyers, which may benefit sales in the near-term. Compared to a year ago, pending home sales were down 24.1%, marking an improvement from the record 36.4% decline observed in November.

Consumer confidence declined for the second consecutive month as a slight increase in consumers’ views of their present situation were more than offset by a decline in future expectations, which fell to a seven-month low. One-year inflation expectations slowed from 6.7% to 6.3%, which directionally will be welcomed by the Fed, given its importance to monetary policy decisions.

Of Note

The market for U.S. special purpose acquisition companies (SPACs) has fallen from its dizzying 2021 heights. Seven SPACs that went public in the last year have filed for bankruptcy, while an additional 73 now trade below $1/share.

S&P 5001.9%
Small Caps2.0%
Intl. Developed1.7%
Intl. Emerging1.7%
U.S. Bond Market0.0%
10-Year Treas. Yield3.96%
U.S. Dollar-0.6%
WTI Oil ($/bl)$80
Gold ($/oz)$1,861

The Week Ahead

  • Feb. Employment Report
  • JOLTs
  • Consumer Credit
  • Factory Orders
  • Weekly Jobless Claims

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