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WEEKLY MARKET ROUND-UP Thru April 28th 2023; “What Next FED?”

Thus far Q1 Earnings are coming in better than the low bar set for them but still showing slowing growth with land mines laying in wait over the summer months. Sell in May and Go Away could be front and center for many investors moving forward. Get my take on the current markets in this Week’s Round-Up.


US indexes ended the week with mixed returns as attention focused on the season’s busiest week of quarterly earnings reports. On Thursday, gains in just four stocks—Microsoft, Apple, Amazon.com, and Facebook—accounted for nearly half of the S&P 500’s strong gains (the biggest since January 6), after Meta jumped 14% on an earnings beat. Cyclical sectors generally performed poorly, however, as investors weighed several new signs of an economic slowdown, particularly in the manufacturing sector. Early in the week, several measures of regional manufacturing activity came in well below expectations and indicated that factories were cutting back on production in April as well as seeing shipping volumes from UPS falling by over 10%. The gain thus far in the S&P has been driven by the narrowest stock leadership since the 1990s with just 6 companies accounting for 53% of the gains. MSFT, GOOGL, AMZN, META, NVDA, and CRM lead most of the gains in the S&P. However, one stat worth knowing is that no bear market has ended without a cathartic volatility spike and before the recession began.

On Thursday, the Commerce Department’s advance estimate of annualized growth in Q1 GDP came in at 1.1%, well below consensus expectations of around 2%. And on Friday we saw the personal consumption expenditures price index excluding food and energy, one of the Fed’s preferred inflation gauges, rise 0.3% in March for a second month. Compared with a year ago, the measure was up 4.6%, Commerce Department data showed Friday. Still too high by FED standards of 2%. Wage growth also moved higher to 1.2% in Q1 which the FEDs also follow. And on the banking front we see renewed turmoil in the banking industry also heightened fears of a slowdown and possible recession. On Tuesday, U.S. markets ended on session lows following California’s First Republic Bank’s earnings release, which revealed that the bank had suffered more than USD 100 billion in deposit outflows in the first quarter. And after markets closed this Friday, we see that unless another bank steps forward, then the Government will have to step in and take over First Republic to prevent failure. The stock is already down over 97% from the initial onset of banking issues.

We will see the FEDs stepping up next Wed where the Futures markets are pricing in over a 84% chance of a 25-bps rate hike (the 10th) and then pausing further hikes to get the economy a chance to catch up to the fast rate increases over the past 9 months. U.S. Treasury yields modestly decreased amid volatility ahead of the following week’s Federal Reserve policy meeting.

The eurozone economy treaded water in the first quarter, expanding less than expected, according to preliminary data. Gross domestic product ticked up 0.1%, a step up from the final quarter of last year, when GDP was flat. Economists polled by FactSet had predicted growth of 0.15%. Economic sentiment in the eurozone held steady in April amid more optimism in the consumer and retail and services sectors, according to the European Commission. However, manufacturers were still pessimistic about production and order books. The UK budget deficit grew to GBP 139 billion in the year to March, up more than GBP 18 billion from a year earlier and the highest level on record, official data showed.

The BoJ’s April 27–28 meeting, the first under new Governor Kazuo Ueda, signaled policy continuity. The central bank kept its short-term policy interest rate at -0.1% and left unchanged its yield curve control framework, under which 10-year JGB yields are allowed to fluctuate in the range of around plus and minus 0.5% from the zero percent target level. he BoJ upgraded its forecasts for Japan’s core inflation slightly, to 1.8% in this 2023 fiscal year (FY), from the 1.6% it anticipated in January, and to 2.0% in FY2024, from 1.8%. The FY2025 forecast is at 1.6%. However, we saw the CPI rise 3.5% year on year, ahead of expectations and well above the BoJ’s inflation target.

And in China we saw profits at industrial firms in China fell 21.4% from January to March from a year earlier, slightly better than the 22.9% drop recorded in the first two months of 2023, according to the National Bureau of Statistics. Despite an increase in exports and factory production, manufactured goods demand remained weak as companies struggled to recover from last year’s pandemic-induced slump.

Enjoy this Week’s Round-Up;

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