Last week, the Federal Reserve (Fed) released its Beige Book, a summary of current U.S. economic conditions through the eyes of the regional Federal Reserve Banks. The summary report (released eight times per year), painted a very healthy picture of the economy. From a household perspective, the report highlighted the tremendous amount of assets within checking and savings accounts, as well as subdued outstanding balances on credit cards. Additionally, measures of credit quality on bank balance sheets appear very strong, suggesting the risk of rising delinquencies or credit distress is low. In total, the Fed’s Beige Book was supportive of our view that, given the strong momentum within the U.S. economy, the near-term threat of recession is low.
On the other hand, the international backdrop is more challenging. China’s strict adherence to its zero-Covid policy continues to leave investors on edge as new cases rise and large cities remain on strict lockdown. Separately, U.S. Secretary of State Antony Blinken and Defense Secretary Lloyd Austin are in Kyiv meeting with Ukrainian leaders as the Russia-Ukraine war enters its third month. The uncertain duration of these developments continues to weigh on global growth outlooks and supply chains. Each raises the degree of difficulty for the Fed as it tries to address white-hot inflation and a tight labor market, while preparing for slower, albeit still positive, U.S. GDP growth.
As of Friday, roughly 20% of the S&P 500’s constituents have reported Q1 2022 earnings results. Thus far, earnings season is off to a relatively strong start, with earnings surprises outpacing misses at a 4-to-1 clip. This week, 175 companies within the S&P 500 will report results, primarily led by major tech companies.
A look back
- The S&P 500 fell by 2.7%, mirroring global equities’ 2.7% decline. Emerging market equities led the global sell-off, falling by 3.3% on the week.
- Yields rose again last week, driven by an increase in anticipated Fed rate hikes. The 2-year yield increased on the week to trade to 2.71%.
- France’s Presidential election over the weekend resulted in a second victory for Emmanuel Macron over Marine Le Pen, the first election win for a sitting French President since 2002. European markets will likely shift focus back to the Russia-Ukraine conflict.
A look ahead
- Earnings season continues this week with mega-cap companies such as Alphabet, Amazon, Apple, Meta Platforms (FB), and Microsoft reporting. These companies make up 21% of the S&P 500.
- Q1 U.S. GDP will be released this week. Expectations for the U.S. are set low due to omicron-related disruptions early in the year and high inflation dragging down real GDP.
- Economic releases: Durable Goods Orders, New Home Sales, Q1 U.S. GDP, Personal Income & Spending, and U. of Michigan Consumer Sentiment.
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