Market Pulse

In focus

Price action last week seemed like investors read the latest economic data however they wanted to. To many, the releases showed a welcome reprieve from the rampant price increases that we have experienced over the past year, but also showed a slowdown in consumer demand. To others the economic weakness opened the window for a potential Federal Reserve (Fed) pivot. Equity markets rose, even after a softer-than-expected retail sales print Friday.

Bad news has become good news with the end of the Fed’s hiking cycle in full focus. It is still up in the air as to whether they will hike again in May, but for all intents and purposes, they are at the end of their tightening campaign. Given the 4.75% of total rate increases over the past year, another 0.25% doesn’t add much whether it happens or not. The ramifications of the rapid rate increases are still playing out.

The bond market took a breather from its recent rally as well with yields climbing last week. Interest rates at the front end of the curve remain the highest, which has been pulling some investors out of deposit accounts and into money market funds or T-Bills. A few banks reported last week, but this week will be an even more important week for financials’ earnings releases. This week will help investors understand how the events in March affected deposits and lending given interest rates are still elevated.

A look back

• Equities were up last week with the U.S. lagging as the S&P 500 rose 0.8%, while the MSCI ACWI was up 1.3%.
• Treasury yields rose in a mostly parallel fashion. The 3-month/10-year yield curve reached its deepest inversion since the 1980s, now below -1.6%.
• Headline consumer prices cooled while the core reading rose, similar to last month. The Producer Price Index was cooler than expected, largely due to energy prices. 

A look ahead

• Q1 earnings season continues with more banks and other financial companies set to report. A few regional banks are a part of the line up as March’s stress will be front of mind. 
• There will be nine Fed speakers this week along with their monthly Beige Book to give clues about May’s policy decision given the latest inflation data.
• Economic releases: Building Permits, Housing Starts, Empire Manufacturing, Existing Home Sales, Leading Index.

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