U.S. and International Equities
Markets Mostly Lower
U.S. stocks ended the week mostly lower with energy and the materials sectors down approximately 2% while growth sectors consumer discretionary and communication services finished higher. Year-to-date, these growth sectors have performed well as some investors believe the slowing economy will cause the Federal Reserve to pivot.
Earnings season is coming to a close as 85% of S&P 500 companies have now reported results. According to FactSet, the blended growth rate for Q1 S&P 500 EPS currently stands at -2.2% vs. pre-reporting season expectations of -6.7%. So far, 79% of companies have beaten consensus EPS expectations, which is above the one-year average of 73% and the five-year average of 77%.
Fixed Income Mixed
The Bloomberg Aggregate Bond Index finished higher as bond prices increased while yields declined. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, ended the week higher.
According to Lipper, municipal mutual funds recorded $846 million of net outflows during the week ending May 3. Last week’s outflows bring year-to-date net outflows to $5.8 billion. Despite reduced new supply in the muni market (and still healthy fundamentals), continued outflows have been a primary driver of the inconsistent returns in the muni market this year.
Commodities Mostly Lower
Energy prices finished mixed this week on concerns over future demand following weaker-than-expected economic reports out of China, the world’s largest oil importer. This week, natural gas increased over 3% following last week’s selloff. Reuters reports that analysts are forecasting an emerging supply deficit for the second half of the year, even as Iraq’s oil minister Hayan Abdel-Ghani told Reuters on Friday that he does not expect OPEC+ to decide on further production cuts when the committee next meets in Vienna on June 4. The major metals, gold, silver, and copper, ended the week lower.
Economic Weekly Roundup
April Consumer Price Index
Last month’s consumer inflation rate increased month-over-month, however the year-over-year annual rate declined to its lowest level since mid-2021. Shelter costs continue to be the largest contributor to inflation, illustrating challenges felt by renters in this country. Airline prices in April declined month-over-month but are still higher than earlier this year as consumers release pent-up demand for travel. In addition, new vehicle prices declined month-to-month for the first time in 12 months as auto dealers work to jumpstart stalled auto sales.
Small Business Optimism Wanes
The National Federation of Independent Business (NFIB) survey for April 2023 showed that few small businesses plan to expand as credit conditions tighten. Overall, small business optimism reached its lowest level since January 2013 as companies plans to cut back on labor costs. Bottom Line: these businesses account for roughly 45% of the U.S. economy and are showing signs of stress.
South Korean Exports
South Korea suffered its seventh straight monthly export decline in April as demand remained soft from its traditional export markets. Demand from China, traditionally a key market for South Korean products, particularly silicon chips, suffered over a 25% decline as the post-COVID-19 China reopening has been primarily based on a rebound in domestic consumer spending on services, rather than a recovery in industrial production.
German Industrial Production
German production declined 3.4% month-over-month in March as some industrial sectors continue to feel the pressure of a tightened lending environment. Manufacturing of motor vehicles and automotive parts, machinery and equipment production, and output from the construction sector were the worst sectors, dropping by 6.5%, 3.4%, and 4.6%, respectively. Furthermore, industrial orders decreased by 10.7%, the largest month-over-month decline since 2020.
Initial claims for the latest week came in above economists’ expectations and reached a 1.5 year high. Continuing claims came in below estimates but above the prior week. The labor market is expected to further loosen during the second quarter as companies respond to slowing demand triggered, in part, by the Fed’s tighter monetary policy.
In addition to a busy week of earnings reports from corporate America, the following economic data is slated for the week ahead:
- Tuesday: Retail Sales (Apr), Capacity Utilization (Apr), Industrial Production (Apr), Manufacturing Production (Apr) Business Inventories (Mar), NAHB Housing Market Index (May)
- Wednesday: Building Permits (Apr), Housing Starts (Apr)
- Thursday: Weekly Initial and Continuing Unemployment Claims, Existing Home Sales (Apr), Leading Indicators (Apr)
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