EQUITY MARKETS RISE AGAIN THIS WEEK AS INFLATION WORRIES PERSIST AND AS Q1 EARNINGS SEASON KICKS OFF WITH THE BIG BANKS

Weekly Market Update — April 15, 2023

• The major equity markets in the U.S. recorded another gain, as the DJIA recorded its fourth consecutive weekly gain
• Most of the market’s movements came late in the week, as the end of the week brought CPI and PPI data and as the big banks kicked off another earnings season
• Inflation was a hot-button all week, as March CPI data showed that total CPI fell on a year-over-year, while core-CPI advanced on a year-over-year basis
• The other inflation data point showed that the total Producer Price Index and core-PPI declined in March
• This week’s inflation data did not change Wall Street’s opinion on more rate hikes, as the CME FedWatch Tool shows a 77.5% probability of a 25 basis points rate hike in May
• The start of Q1 earnings season kicked off on Friday as JPMorgan Chase, Citigroup, Wells Fargo and BlackRock all rose after showing good Q1 results
• Of the 11 S&P 500 sectors, 4 declined as Real Estate (-1.5%), Utilities (-1.3%), Information Technology (-0.4%) and Consumer Staples (-0.3%) were tightly bunched
• The 2-year Treasury yield rose to 4.10% and the 10-year Treasury rose 11 basis points to 3.52%
• The U.S. Dollar Index rose 0.5% to 101.56
• WTI crude oil jumped 2.5% to $82.55/barrel

*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Stock Markets Advance This Week

The major U.S. equity benchmarks ended another week higher, but inflation worries hung over investors all week, as CPI and PPI data was released. Total CPI and total PPI and core-PPI came in as expected, but the core-CPI data moved the wrong way.

Trading was also very light all week, but picked up on Friday, which coincided with the start of Q1 earnings season that was kicked off by banking giants JPMorgan Chase, Wells Fargo, and Citigroup. All three big banks beat consensus estimates, which helped push the Financials sector to a gain of almost 3% on the week, topping the other 10 S&P 500 sectors.

The most highly anticipated event of the week was the Labor Department’s Wednesday morning release of the Consumer Price Index for March. Investors rejoiced that the CPI rose only 0.1% and the year-over-year rate fell to 5.0%, the slowest pace since May 2021. But then investors parsed through the data and were less pleased with core-CPI numbers.

Other economic data this week included:

• Wholesale inventories rose 0.1% in February
• The NFIB Small Business Optimism Survey fell to 90.1 in March from 90.9 in February
• The weekly MBA Mortgage Applications Index rose 5.3% with purchase applications jumping 8.0%
• The Producer Price Index for final demand declined 0.5% month-over-month in March
• Initial claims for the week ending April 8 increased by 11,000 to 239,000
• Total retail sales declined 1.0% month-over-month in March
• Excluding autos, retail sales were down 0.8% month-over-month
• Import prices declined 0.6% month-over-month and were down 4.6% year-over-year
• Total industrial production increased 0.4% month-over-month in March
• The University of Michigan Consumer Sentiment Index for April rose to 63.5

Inflation Up 5.0% Over the Past Year

On Wednesday, April 12th, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers rose 0.1% in March, after increasing 0.4% in February, and that over the last 12 months, the All Items index increased 5.0%.

Unpacking the CPI data shows that the index for shelter was by far the largest contributor to the increase, which more than offset a decline in the energy component, which decreased 3.5% over the month. Further, the food index was unchanged in March, but there were still some big price increases to food.

Small Businesses Struggling to Find Workers

A stunning 47% of small business owners reported job openings they could not fill in the current period, according to NFIB’s monthly jobs report.

Further:

• The percent of small business owners reporting labor quality as their top small business operating problem remains elevated at 21%, down three points from January.
• Labor cost reported as the single most important problem to business owners increased two points to 12%, down one point below the highest reading of 13% reached in December 2021.
• A net 17% of owners are planning to create new jobs in the next three months, down two points from January and 15 points below its record high reading of 32 reached in August 2021, showing that the trend in planned hiring is on the decline.

In addition, “Sixty percent of owners reported hiring or trying to hire in January, up three points from January. Of those hiring or trying to hire, 90% of owners reported few or no qualified applicants for the positions they were trying to fill. Thirty percent of owners reported few qualified applicants for their open positions.

Seasonally adjusted, a net 46% of owners reported raising compensation, unchanged from last month. A net 23% plan to raise compensation in the next three months, up one point from January.

Thirty-eight percent of owners have job openings for skilled workers and 19% have openings for unskilled labor.”

Mortgage Applications Up From Last Week Mortgage applications increased 5.3% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. The Market Composite Index, a measure of mortgage loan application volume, increased 5.3% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 0.1% from the previous week and was 57% lower than the same week one year ago. The Purchase Index increased 8% from one week earlier and was 31 percent lower than the same week one year ago. “Incoming data last week showed that the job market is beginning to slow, which led to the 30-year fixed rate decreasing to 6.30 percent – the lowest level in two months. Prospective homebuyers this year have been quite sensitive to any drop in mortgage rates, and that played out last week with purchase applications increasing by 8 percent. Refinance application volume was a mixed bag with total volume essentially flat, conventional volume down for the week, but VA refinance volume increasing. The level of refinance activity remains almost 60 percent below last year, as most homeowners are currently locked in at much lower rates.” Mortgage Rates Drop The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $726,200) decreased to 6.26 percent from 6.36 percent, with points decreasing to 0.42 from 0.47 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.<./li> The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 6.29 percent from 6.33 percent, with points decreasing to 0.91 from 0.92 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week. The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.78 percent from 5.97 percent, with points increasing to 0.57 from 0.54 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week. The average contract interest rate for 5/1 ARMs decreased to 5.51 percent from 5.61 percent, with points decreasing to 0.9 from 1.02 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

Sources

bls.gov;nfib.com;mba.org;msci.com;fidelity.com;nasdaq.com;wsj.com; morningstar.com;