Week in Review: March 31, 2023
April 3, 2023
Recap & Commentary
Markets ended the week higher, continuing to build on last week’s momentum, as investors attempted to move past the regional banking turmoil spurred by the collapse of Silicon Valley Bank. News broke that First Citizens Bancshares would take over most of SVB’s assets and liabilities. This sent bank stocks and the broader market higher. In other positive signs for the sector, data out this week from the Federal Reserve showed deposits at small US banks stabilized at 5.39T for the week ending 3/22 after losing 200B the week that SVB and Signature Bank collapsed. Additionally, borrowings by US banks from the Fed’s discount window, as of the week ended 3/29, were down to 88.16B. The prior week’s borrowings were 110.3B. Borrowings peaked at 153B in mid March. In tandem these reports could signify that fears of further bank runs are abating.
Most of the weekly gains took place on Wednesday and Friday. Wednesday saw gains due in part to positive earnings from Lululemon and positive guidance from Micron Technology, as opposed to any macro related news. On Friday, the market responded positively to February PCE data coming in slightly better than anticipated, though inflation remains far too elevated at more than two times the Fed’s target rate. The S&P 500 ended the quarter up 7%, the index’s best quarter since 4Q21. The Nasdaq surged 16.8% for the quarter, the index’s best quarter since 2Q20.
Inflation, as measured by the personal consumption expenditures price index (PCE), increased 0.3% in February, slightly below the estimate of 0.4%. Core PCE saw an identical increase. On a year-over-year basis core PCE increased 4.6%, slightly decelerating from the January level. The softer than expected data was driven by monthly energy prices declining.
Personal incomes rose 0.3% in February, following a 0.6% increase in January. Consumer spending ticked up 0.2% from the prior month, while spending in January was revised upwards to 2%. The slowdown in consumer spending followed the largest increase in nearly two years in January. That, together with February’s small gain put consumer spending on track to surge this quarter after growing at its slowest pace in 2.5 years in Q4.
Consumer sentiment fell for the first time in four months as expectations of a recession increased. One-year inflation expectations continued to moderate, falling 0.5% to 3.6%. The current reading is the lowest since April 2021. Long term inflation expectations remained unchanged at 2.9%
Pending home sales surprised in February ticking up 0.8% while economists had anticipated a 3.0% decline. January saw a sharp gain, while higher rates in February likely suppressed further momentum. Pending home sales were still down 21.1% from a year ago, but recent reports suggest the housing market has turned a corner.
Following the sanctions the U.S. had placed on Russia for invading Ukraine, a few global economies have increased their efforts to de-dollarize trade. Most recently Brazil announced an agreement with China was made to trade directly in their own national currencies. India also began permitting 18 countries to settle payments in Indian rupees. In the last two decades, the US dollar has lost over 12 percentage points of global market share, from 71% to 59% in 2022.
Market Indices (As of 03/31)
|U.S. Bond Market||-0.46%|
|10-Year Treas. Yield||3.47%|
|WTI Oil ($/bl)||$75.70|
The Week Ahead
- ISM Manufacturing
- ISM Services
- Factory Orders
- March Employment Report
- Weekly Jobless Claims