Weekly Market Report: March 29th, 2023

Broad equity markets closed higher for the week, month, and quarter in a holiday shortened trading week where the S&P 500 was up 0.40%, 3.43%, and 10.4% respectively. The economic calendar was relatively full but due to markets being closed on Friday, the most watched report (PCE) came after the market closed for the week. Bond yields and currencies were both relatively flat on the week while commodity markets managed a 1.4% gain with WTI oil rallying 3.2% to $83.17 and gold (+2%) marking a new record high of $2,214 per troy ounce.

Market Anecdotes

  • The S&P 500 notched a second consecutive quarterly double-digit return, something we haven’t seen since 2012. Of note, never have we seen three consecutive double-digit quarters.
  • Equity markets continued to display some of the ‘rotation dynamics’ highlighted recently where 2024 laggards are leading and momentum/growth names are settling in behind. Quarter-end dynamics may be a factor, but a healthy consumer and macro backdrop are certainly helping.
  • In terms of policy implications from March FOMC forecast revisions, we’d suggest they paved an easier path forward for themselves with no clear need to deviate from planned policy if growth stays reasonably strong and if core inflation hovers around 2.5%.
  • An important distinction between the Fed and markets is that the former sees the long-term neutral rate at 2.56% while the latter at 3.5%, meaning the Fed sees policy as more restrictive than the market longer term.
  • Remembering that financial markets and the economy frequently deviate from economic forecasters, including the Fed and most others, particularly over a multi-quarter or multi-year horizon, serves to remind investors the trend is your friend, until it is not.
  • The third estimate of U.S. 4Q GDP was revised up from 3.0% to 3.3% and also saw a reduction in core PCE from 2.1% to 2.0% and an acceleration in q/q corporate profits from Q3 3.4% to Q4 4.1%.
  • BCA’s note of caution last week was that while the 3mo trailing average unemployment rate, currently 3.76%, has yet to trigger the Sahm Rule, it has triggered in 20 of 50 states and, combined with auto/credit card delinquency rates, dwindling pandemic savings, and softening labor demand, persistently robust consumption may fade over the coming year.

Economic Release Highlights

  • The pace of headline (core) PCE inflation in February was generally in line with forecasts, registering 2.5% (2.8%) YoY and 0.3% (0.3%) MoM. Personal Consumption exceeded forecasts (0.8% vs 0.5%) while Personal Income growth of 0.3% was slightly under the 0.4% forecast.
  • Consumer Confidence for March registered 104.7, lower than both the spot forecast of 106.7 and forecast range of 105-108.
  • The final March UofM Consumer Sentiment Index was revised higher from 76.5 to 79.4 while 1yr (3% to 2.9%) and 5yr (2.9% to 2.8%) inflation expectations ticked lower.
  • February’s Durable Goods Orders report showed New Orders (1.4% vs 1.3%), Ex-Transportation (0.5% vs 0.5%), and Core Capital Goods (0.7% vs 0.1%).
  • The third estimate of 4Q U.S. GDP was revised higher from 3.2% to 3.4% A/R with Personal Consumption Expenditures increasing from 3.0% to 3.3%.
  • China’s CFLP PMI (C,M,S) surprised to the upside in March with readings of 52.7 (50.9 prior), 50.8 (50.2e), 53.0 (51.5e).
  •  Case-Shiller Home Price Index showed gains of 6.6% YoY and 0.1% MoM, both within the broad consensus range.
  • February New Home Sales of 662k came in slightly under the consensus forecast of 675k. Pending Home Sales increased 1.6% MoM, slightly more than the 1.3% forecast.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
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