In the markets:
U.S. Markets:
The major benchmarks ended the week mixed as trading volumes were especially light early in the week as investors awaited more earnings news. The Dow Jones Industrial Average ticked down -0.2% finishing the week at 33,809, while the technology-heavy NASDAQ Composite ended down -0.4% to 12,072. By market cap, the large cap S&P 500 ended down 0.1%, while the mid cap S&P 400 and small cap Russell 2000 rose 0.4% and 0.6% respectively.
International Markets:
International markets finished the week predominantly to the upside. Canada’s TSX and the United Kingdom’s FTSE 100 rose 0.6% and 0.5% respectively, while on Europe’s mainland France’s CAC added 0.8%. Germany’s DAX rose 0.5%. In Asia, China’s Shanghai Composite retreated -1.1% and Japan’s Nikkei ticked up 0.2%. As grouped by Morgan Stanley Capital International, developed markets finished up 0.6%. Emerging markets ended down -1.8%.
Commodities:
Major commodities finished the week to the downside. Gold pulled back -1.3% to $1990.50 per ounce, while Silver fell -1.6% to $25.06. The industrial metal copper, viewed by some analysts as a barometer of world economic health due to its wide variety of uses, ended the week down -3.1%. West Texas Intermediate crude oil finished the week down -5.6% to $77.87 per barrel.
U.S. Economic News:
The number of Americans filing first-time unemployment benefits rose by 5,000 to 245,000 last week, the Labor Department reported. New jobless claims remain historically low, but they have risen in a sign the labor market has cooled slightly as higher interest rates dampen U.S. growth. Thirty-five of the 53 U.S. states and territories that report jobless claims showed a decrease last week. Eighteen posted an increase. Most of the increase in new jobless claims came in New York, where new filings typically rise during school breaks and fall immediately afterward. Meanwhile, continuing claims, which counts the number of people already receiving benefits jumped by 61,000 to 1.87 million. Continuing claims are at their highest level since November 2021.
Existing-home sales fell 2.4% to an annualized rate of 4.44 million last month as buyers contended with higher mortgage rates and fewer listings. The drop in sales was larger than expected. Economists had expected existing-home sales to total 4.48 million in March. Compared with March 2022, home sales were down 22%. The median price for an existing home fell by 0.9% from last March, dropping to $375,700 this year. The drop is the largest since January 2012, when home prices fell 2% year over year. It’s also the second month in a row that home prices fell. Sales of existing homes fell in most regions, falling the most in the Midwest. The Northeast was the only region that saw sales remain flat.
Confidence among the nation’s homebuilders rose for a fourth consecutive month primarily due to a lack of listings on the market. The National Association of Home Builders (NAHB) monthly confidence index rose one point to 45 in April, matching expectations. The reading was the strongest since September of last year, but remains down 32 points from the same time last year. Builders were optimistic about the future as buyers contend with a low number of homes on the market. Sellers of existing homes remain reluctant to give up their ultralow mortgage rates. Builders in all four U.S. regions reported an increase in confidence, the NAHB said. Robert Dietz, chief economist at the NAHB noted, “Currently, one-third of the housing inventory is new construction, compared to the historical norms of a little more than 10%.”
According to the latest ‘Beige Book’, a collection of anecdotal reports from each of the Federal Reserve’s member banks, bank lending slowed after the failure of Silicon Valley Bank and businesses hired fewer people in the early spring, but inflation also “appeared to slowing”. The Fed said both lending by banks and demand for loans among consumers and businesses “generally declined” over the period. The dropoff was especially sharp in the San Francisco region where SVB was based. “Lending activity declined substantially,” the Beige Book said. “Some contacts worried that smaller banks might restrict lending over liquidity concerns, putting a damper on economic activity,” the Boston Fed said. On the brighter side, the Fed said, “the rate of price increases appeared to be slowing.” Inflation has eased from a 40-year high of 9% last year to a yearly rate of 5% as of March.
The U.S. economy is heading towards recession according to the latest reading of the Leading Economic Index (LEI). The LEI declined -1.2% in March, posting its biggest decline in three years and its 12th consecutive decline. The leading economic index is a gauge of 10 indicators designed to show whether the economy is getting better or worse. Seven of the 10 indicators tracked by the Conference Board fell in February. Justyna Zabinska-La Monica, senior manager of business cycle indicators at the Conference Board wrote, “Economic weakness will intensify and spread more widely throughout the U.S. economy over the coming months, leading to a recession starting in mid-2023.”
International Economic News:
a strike by federal civil servants in Canada is one of the largest in that country’s history and analysts suggest it may last long enough to put a dent in second quarter economic growth. More than 155,000 federal workers walked out this week in a wage dispute with Prime Minister Justin Trudeau’s government. They’re looking for pay increases of at least 13.5% over three years--the government has offered 9%. The sides have been negotiating since June 2021. Economists surveyed already expect the economy to enter a technical recession in the second and third quarter and a prolonged labor dispute could make things worse.
Inflation in the United Kingdom remained in double-digits last month, far higher than other Western economies as food prices rose at a record pace. Consumer prices rose 10.1% in March compared with a year ago, down only slightly from 10.4% in February, according to the Office for National Statistics. A decline in the cost of motor fuels was offset by a sharp increase in food prices, which rose 19.2% through the year to March — the highest rate in more than 45 years. Core inflation, which strips out volatile food and energy costs, remained unchanged in March at 6.2%. “Inflation in the UK has risen further and stayed higher than elsewhere, as the UK has endured the worst of both worlds: a big energy shock (like the euro zone) and labor shortages (even worse than the US),” Ruth Gregory, deputy chief UK economist at Capital Economics, said in a note.
French president Emmanuel Macron addressed the nation this week after having passed a series of widely unpopular pension reforms that have sparked months of protest throughout France. The speech came after France’s constitutional court ruled in favor of Macron’s government last week. In a televised speech, Macron said he “understood the anger” of the protestors but remained confident that his new law was “needed to guarantee everyone’s pension.” The months-long political crisis has done serious damage to the president’s political reputation, with his approval rating dropping to a record low of 23% in a recent poll. The reforms overhaul the French pension system, including raising the national retirement age from 62 to 64.
The outlook for the German economy tumbled unexpectedly in April on uncertain financial markets in the aftermath of turbulence in the banking sector. The ZEW economic research institute said this week that its index of economic expectations for Germany fell to 4.1 in April from 13.0 in March, considerably down from the consensus forecast of 15.0. The reading means no significant improvement in the economic situation is to be expected in the next six months, ZEW said. Sentiment was hit by expectations banks will be more cautious in granting loans, and that still-high inflation rates and internationally restrictive monetary policy are weighing on the economy, ZEW President Achim Wambach said.
In Asia, China’s economy got off to a solid start in 2023, as consumers went on a shipping spree after three years of strict pandemic restrictions ended. Gross domestic product grew by 4.5% in the first quarter from a year ago, according to the National Bureau of Statistics. That beat the consensus forecast of 4% growth. But private investment barely budged and youth unemployment surged to the second highest level on record, indicating the country’s private sector employers are still wary about longer term prospects. However, consumption posed the strongest rebound. Retail sales jumped 10.6% in March from a year earlier, the highest level of growth since June 2021. Louise Loo, China lead economist for Oxford Economics wrote in a note to clients, “The combination of a steady uptick in consumer confidence as well as the still-incomplete release of pent-up demand suggest to us that the consumer-led recovery still has room to run.”
The Bank of Japan maintained its upbeat economic assessment for most regions, saying wage hikes were broadening, underscoring its conviction that the country was on a path to sustainably meet its inflation target of 2%. In its quarterly report analyzing regional economies, the central bank left unchanged its assessment for seven of Japan's nine regions, which were "picking up" or "picking up moderately", it added. "Many regions said wage hikes were broadening, even among small and mid-sized firms due to intensifying job shortages and rising inflation," the bank said in a summary of a meeting of its regional branch managers.
Finally:
Last year, stock and bond returns tumbled after the Federal Reserve hiked interest rates at the fastest speed in 40 years. It was the first time in decades that both asset classes posted negative annual investment returns in tandem. Over the last four decades, this has happened 2.4% of the time across any 12-month rolling period. To look at how various stock and bond asset allocations have performed over history - and their broader correlations - the graphic below, via Visual Capitalist's Dorothy Neufeld, charts their best, worst, and average returns using data from Vanguard.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All information is believed to be from reliable sources; however, Our firm makes no representation as to its completeness or accuracy. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Past performance does not guarantee future results. Asset allocation does not ensure a profit or protect against a loss.
(Sources: All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet.)