Economic data last week gave investors increased confidence that inflation is cooling. The April Consumer Price Index (CPI) came in at 0.4%, in line with expectations and lowering year-over-year headline CPI to 4.9%. The Producer Price Index was reported as well and was below expectations, providing some indication the Federal Reserve’s (Fed) 500 basis points (5%) of rate hikes are working their way through the system. On the other hand, the University of Michigan Consumer Sentiment Survey reached its lowest levels in six months and initial jobless claims increased to a 19-month high − increasing concerns of a coming recession.
Equity markets remain mixed as earnings season wraps up. According to FactSet, 78% of companies that have reported results have beaten earnings expectations, which is above the 10-year average of 73%. This comes after the bar was lowered through downward estimate revisions throughout the first quarter. Mega cap tech companies continue to prop up the broader market and offset weakness under the market’s surface as nine of the eleven sectors in the S&P 500 reported negative performance last week.
A look back
- Global equity markets were modestly negative last week with all major regions ending down less than 1%. U.S. equities fared best, finishing negative by only -0.24%.
- The 2-/10-year U.S. Treasury yield spread further inverted by four basis points (0.04%) with the 2-year yield creeping up to end the week just below 4%.
- Last week’s data showed continued easing of inflation but did so at the cost of weaker economic data, which fueled recession talk.
A look ahead
- First quarter earnings are nearing an end as brokerage conferences ramp up and investors will use what they’ve learned from 1Q23 to assemble a view for the current quarter.
- New York Fed President Williams will take the stage twice this week in addition to several other appearances by Fed officials, including Fed Chair Powell.
- Economic releases: Retail Sales, Industrial Production, Housing Starts, Existing Home Sales, and Leading Index.
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