U.S. and International Equities
Stocks ended the week mixed as energy was a top performing sector for the second straight week on the back of higher crude oil prices. West Texas Intermediate crude oil is up around 6% after OPEC+ announced it was slashing output by 1.16 million barrels per day. Last month, the price of oil dropped to an 18-month low as a glut of supply and fears over the global economy concerned traders. In addition, defensive sectors utilities along with health care were leading performers for the week. Developed international witnessed a solid week as concerns about the European banking sector and economic outlook remain in the forefront of investor’s minds.
As we look ahead to first quarter 2023 earnings season, which kicks off next week, investors will be watching for signs of margin compression and cautious guidance that could bring earnings estimates down further.
Fixed Income Higher
The Bloomberg Aggregate Bond Index finished higher as bond prices appreciated while yields declined. This week’s lighter-than-expected economic prints have led some investors to believe in a Federal Reserve (Fed) pivot. In addition, high-yield corporate bonds, as tracked by the Bloomberg High Yield index, gained some ground this week, but lagged the Bloomberg Aggregate Index. This particular fixed income investment had been the most affected by recent banking stress as many traders are still worried about credit and lending conditions.
During the first quarter, 12 U.S. companies defaulted totaling $18.4 billion in bonds ($7.4 billion) and bank loans ($11.0 billion). For the quarter, the par-weighted U.S. high-yield bond and loan default rates decreased 0.21% and 0.05% to 1.91% and 2.22%, respectively. The high yield bond and loan default rates compare to the long-term average of 3.2% (high yield) and 3.1% (bank loan)
Commodities Mostly Higher
Energy prices finished mixed as traders remain concerned over the present banking climate and its potential effect on the economy. Crude oil rallied for the third straight week after reaching a 15-month low four weeks ago amid this week’s OPEC + supply cuts. Natural gas prices finished lower for the fourth consecutive week. The major metals, gold, silver, and copper, ended the week mixed. Gold price jumped above $2,010, reaching its highest level since March of last year.
Economic Weekly Roundup
March ISM Services
In March, the ISM Services index fell to 51.2 from 55.1 the previous month. Prices paid by purchasing managers in the services sector declined for the fifth month, reaching their lowest level since July 2020. New orders also declined from last month as demand for services is growing at a slower pace.
The recent comments from purchasing managers imply a weakening outlook for both businesses and consumers. As the economy slows and inflation decelerates, the Fed should be in a better position to pause the current rate hiking campaign. As the economy recalibrates, investors should expect market volatility to dampen from here.
March ISM Manufacturing
U.S. manufacturing activity last month fell to its lowest since May 2020, as recession fears loom in front of businesses and consumers alike. Employment shrunk for the second month as firms cut workers in response to weaker demand. The decline in jobs is a harbinger of a weaker job market in the months ahead. Prices paid by factories declined in March and align with the latest reading from the Fed’s preferred inflation gauge released last week.
JOLTS Job Openings
Job openings tumbled below 10 million in February for the first time in nearly two years. It was the first time vacancies fell below 10 million since May 2021. Professional and business services saw a slide of 278,000 job openings on the month to lead decliners. That being said, there were 129,000 new construction jobs available, however this was the only category that saw a noticeable increase.
Weekly Unemployment Report
Initial and continuing claims for the latest week came in well above economists’ expectations, however initial claims came in lower than the week prior which was revised sharply higher. The labor market is expected to further loosen up during the second quarter as companies respond to slowing demand triggered by the Federal Reserve’s hawkish sentiment.
The following economic data are slated for the week ahead:
- Monday: Wholesale inventories (Feb),
- Tuesday: NFIB Small Business Index (Mar)
- Wednesday: March Consumer Price Index, FOMC Minutes, hourly earnings (Mar), average workweek (Mar)
- Thursday: Weekly initial and continuing unemployment claims, March Producer Price Index
- Friday: Export/Import Price (Mar), March Retail Sales, capacity utilization (Mar), industrial and manufacturing production (Mar), business inventories (Feb), Michigan Sentiment (Apr)
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