Market Pulse

In focus

Markets were poised for volatility last week as the Federal Reserve (Fed) met, but the surprises came from other important events. The bond and stock markets only had minimal moves after the Fed decided to raise their benchmark rate by another 0.25% last week. The rate hike and the Fed’s forward guidance of now being data dependent was widely expected. It is very likely that we just saw the Fed’s last rate hike of this cycle, although the bar for cutting rates remains high as well.

Equity markets were whipsawed with worries about the banking sector sparking some selling to start the week. After Apple reported better than expected earnings and the jobs report on Friday showed higher wage gains, the S&P 500 recovered much of the week’s losses. The market remains near its near-term peak despite all the negative headlines as the top-heavy mega-cap companies continue to play an outsized role in performance for the overall index.

U.S. Treasury yields saw some volatility with all the headlines as well but largely remained in their near-term trading ranges. The debt ceiling continues to create distortions in the very front end of the curve and the 10-year yield has stayed at or below 3.60%, which has pushed the 3-month/10-year yield curve to its lowest point this cycle, below -1.80%. At the same time, the 2-/10-year yield curve has re-steepened some from its deep inversion, which typically happens closer to the onset of a recession. 

A look back

• U.S. equities lagged last week, with the S&P 500 down -0.8%, while international markets were positive on the week.
• Treasury yields were volatile with parts of the yield curve down and parts up on the week. The 3-month/10-year inversion deepened and is now below -1.80%.
• The jobs report showed more jobs were added in April than most had expected. At the same time, the unemployment rate dropped to this cycle’s low again at 3.4%.

A look ahead

• Inflation remains in focus as April’s consumer and producer price reports this week will show how much progress has been made after 5% of Fed rate hikes in the past year.
• There will be nine Fed speakers this week after last week’s FOMC meeting and hike. They will try to frame their outlook now that the market thinks they are going to be pausing.
• Economic releases: Consumer & Producer Prices, NFIB Small Business Optimism, Import & Export Prices, U. of Michigan Sentiment.

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