Economic Update 5-23-2023 

• Economic data for the week included increases in retail sales and industrial production, mixed regional manufacturing and housing results, and a decline in jobless claims. 
• Global equities were higher for the week, with an absence of negative economic data, with a stronger dollar dampening foreign stocks a bit. Bonds lost ground due to rising interest rates. Commodities were led higher by stronger crude oil and natural gas prices. 

U.S. stocks were higher overall on the week, with sentiment increasingly tied to U.S. debt limit negotiations. Signs of positivity mid-week were followed by less enthusiasm by Friday as plans hit a ‘pause.’ It appears that Congress and the President have been ramping up efforts to find a debt ceiling deal, with a rising consensus the Treasury will exhaust funds in early- to mid-June. That said, while the meeting frequency is ramping up, and the President appears to be shortening an upcoming Asia trip to work on this, a final deal does not seem imminent yet. Democrats have even attempted a ‘discharge petition,’ with an attempt to gather the support of moderate Republicans; however, the unique requirements make it less likely to succeed. Unlike prior episodes, though, stock market volatility during this debt episode has been muted, although signs of progress did help the market upward mid-week. 

Economic Update 5-08-2023 

• Economic news for the week included the FOMC hiking rates by another quarter-percent, raising speculation that this might be for the final time this cycle. The employment situation report came in stronger than expected, with a falling unemployment rate, although other details were less robust. ISM services improved further into expansion, as did ISM manufacturing, although the latter remained in contraction—the mixed results reflect the uncertain prospects for recession (or not). 
• Equities were mixed, with a decline in the U.S. offset by gains in foreign emerging markets. Bonds fell back, as credit spreads widened. Commodities fell back, notably in energy, largely due to concerns about the economy. 

U.S. stocks lost ground on the week, despite a strong recovery attempt on Friday after perceived strength in the April employment report. Comments from Fed Chair Powell contradicted market hopes for lower rates soon, in addition to likely angst surrounding the upcoming U.S. government debt limit. By sector, technology led the way with a small gain, led by a strong report from Apple, followed by defensive health care and utilities ended the week flat; laggards included energy down -6% and financials. Real estate was down -1%. 

Economic Update 5-01-2023 

• Economic data for the week included Q1 U.S. GDP growth coming in lower than expected, gains in durable goods orders, and continued mixed results for housing markets.
• Equities rose last week as earnings came in surpassing low expectations, with the U.S. outperforming international. Bonds fared well as interest rates fell back with weaker economic data. Commodities also fell back generally for the same reasons, with crude oil prices down slightly.

U.S. stocks gained last week, largely due to a strong Thursday, as investors digested a packed week of earnings reports. So far, earnings results for closely-watched companies, including tech-related giants Alphabet/Google, Microsoft, Amazon, and Meta/Facebook, have been better than expected. Smaller cap stocks, particularly in the value segment, continue to be hampered by concerns over operating conditions for regional banks. By sector, communications and technology led with gains of 2% or better, while industrials (with a poor showing by UPS), health care, and utilities lost ground in the week. Real estate also gained, as interest rates fell back.

Economic Update 4-26-2023 

• Economic data for the week included mixed results from several regional manufacturing surveys, while existing home sales and housing starts data deteriorated further.
• Global equities were little changed last week, with small gains in the U.S. and developed foreign markets, offset by a decline in emerging markets. Bonds fell back as interest rates rose across the yield curve. Commodities also fell back as crude oil prices reacted negatively to continued fears of lower recession-driven demand.

U.S. stocks began the quarter positively, but fell back a bit Tues. with JPMorgan CEO Jamie Dimon noting that the banking crises was not over and negative ‘repercussions’ would be felt for years to come, and the President of the Cleveland Fed expected rates to get to over 5% and ‘stay there’. Both comments appeared to sour sentiment a bit. Otherwise, conditions were mixed with economic data coming in a bit below expectations. By sector, defensive health care and utilities saw gains over 3%, followed by energy with higher oil prices; the largest declines were seen in industrials and consumer discretionary. Reporting on Q1 earnings results will start in coming weeks, but expectations remain mixed. We don’t tend to see a recession without a decline in corporate earnings, but sharp earnings declines haven’t been priced in (beyond the -5% or so year-over-year drop for Q4-2022/Q1-2023).

Economic Update 4-10-2023 

• Economic data for the week included weaker ISM manufacturing and non-manufacturing results, while the employment situation report came in just above expectations, despite some slowing under the surface.
• Equities were mixed globally, with flattish results in the U.S. and Europe seeing gains. Bonds fared well as weaker economic data pulled down treasury yields. Commodities rose upon early week news of oil production cuts, boosting prices in the energy space.

U.S. stocks began the quarter positively, but fell back a bit Tues. with JPMorgan CEO Jamie Dimon noting that the banking crises was not over and negative ‘repercussions’ would be felt for years to come, and the President of the Cleveland Fed expected rates to get to over 5% and ‘stay there’. Both comments appeared to sour sentiment a bit. Otherwise, conditions were mixed with economic data coming in a bit below expectations. By sector, defensive health care and utilities saw gains over 3%, followed by energy with higher oil prices; the largest declines were seen in industrials and consumer discretionary. Reporting on Q1 earnings results will start in coming weeks, but expectations remain mixed. We don’t tend to see a recession without a decline in corporate earnings, but sharp earnings declines haven’t been priced in (beyond the -5% or so year-over-year drop for Q4-2022/Q1-2023).

In foreign markets, the U.K. and Europe saw gains, as fears of a wider banking crisis seemed to abate, while Japan and the emerging markets declined. In fact, industrial production in Germany unexpectedly rose, as did manufacturing orders, showing signs of economic life. Inflation also continued to decelerate. The Reserve Bank of Australia kept cash rates steady at 3.60%, pausing to reassess slowing economic conditions. This was taken as a sign of possible similar actions by other banks, including the U.K, which hinted that they may be nearing an end.

Economic Update 4-3-2023 

• Economic data for the week included a slight revision lower in U.S. GDP growth for Q4, a continued deceleration in home prices, and mixed results for consumer sentiment.
• Global equities fared positively to end the quarter, as fears of further banking contagion faded further. Government bonds declined as interest rates rose, while corporates and emerging markets rallied. Commodities gained along with stronger sentiment.

U.S. stocks gained to end the quarter, despite little meaningful economic news. Every sector experienced a positive week, with more cyclical energy, consumer discretionary, and materials all up over 5%. Real estate also gained about 5%, despite interest rates rising. Generally, waning fears of a broader banking crisis have appeared to fuel a relief rally of sorts. Mid-week, the Biden administration and U.S. Treasury proposed a new set of regulations for mid-sized banks with $100-250 bil. in assets, including stronger capital and liquidity requirements, annual stress tests, and bolstered supervision, including specific tests to determine a bank’s ability to withstand higher interest rates. These would close the gap somewhat with what larger banks are required to undergo, by reversing the loosening in regulations several years ago.

• Economic news for the week included the Federal Reserve raising rates another quarter-percent, durable goods orders falling back, mixed to slightly better housing data, and little change in jobless claims.
• Global stocks saw positive returns last week, as some banking concerns abated, along with hopes for central banks easing hawkish policies. Bonds fared positively as well. Commodities rose in price across the board with help from a weaker dollar.

U.S. stocks calmed from the prior week, with some abating stress from the banking woes and lower interest rates helped sentiment. By sector, leaders included communications, materials, and energy, although defensive staples and health care were right behind. Utilities and real estate were the two sectors that lost ground, with the latter tied to concerns over expected tighter bank financing for commercial properties.

Economic Update 3-20-2023 

• Financial news was dominated by concerns over the viability of several U.S. banks, wavering between fear and relief during the week. Economic data included declines in retail sales and consumer sentiment, while housing starts gained sharply. A variety of other data, which included industrial production and regional manufacturing indexes, were mixed.
• Equities fell back globally last week, along with concerns over banking system health and economic side effects prompted investors to move away from risk. Bonds benefitted from these flows, as interest rates fell sharply. Commodities were largely also down due to rising fears of recession.

U.S. stocks began the week on a sour note, with initial cheers over the SVB fix followed by concerns over wider bank balance sheet problems caused by the inverted yield curve (spreading to First Republic Bank, before a liquidity solution was found). Market sentiment moved back and forth by the day with concerns over other potential banks with similar issues, including systematically important European bank Credit Suisse. Debate continues over the possible path for the Fed this week—with odds continuing to waver between no move and a 0.25% hike, a 0.50% no longer in the running, and odds again rising for a rate cut by later 2023.

By sector, ‘growth’ stocks led the way with gains in communications, technology, and consumer discretionary. This is a group expected to benefit from lower interest rates, as well as is considered a bit of a buffer during slow growth periods, as well as just ‘not being’ financials. The more economically-sensitive ‘value’ group fell back, notably in energy, financials, and materials. Specifically, the regional bank segment (which is the group below the mega-cap money center banks) fell by upwards of -20% to -25%, depending on the index used.

Economic Update 3-13-2023 

• Economic data for the week was largely focused on labor markets, with nonfarm payrolls and ADP employment coming in stronger than expected, while job openings declined and the unemployment rate increased. This pointed to a mixed overall message.
• Stocks fell back in both the U.S. and foreign markets due to tough central bank talk that pointed to higher interest rates, as well as volatility in financials late in the week due to a large regional bank failure. Bonds benefited from flows away from risk. Commodities declined due to lower perceived demand as recession risks remained high, in addition to warmer weather.

U.S. stocks suffered a variety of negative days last week, as interest rate expectations repriced higher due to Fed comments, and related concerns over certain bank balance sheets dominated sentiment by the week’s end (as discussed in an earlier note). Every sector ended in the negative, led by financials down over -8%. Defensive stocks such as consumer staples and utilities performed marginally better, with declines of ‘only’ -2% to -3%.

Economic Update 3-6-2023 

• Economic data for the week was mixed again, with ISM services remaining solidly expansionary, while ISM manufacturing continued to contract (although it improved from the prior month). Durable goods orders also fell, while pending home sales surprised on the upside.
• Equities rose last week with mixed, but not terrible, economic data and earnings keeping sentiment elevated. Bonds also gained a bit as interest rates stabilized after a recent inflation-based spike. Commodities rose due to higher crude oil and natural gas prices. 

U.S. stocks rebounded last week after their worst showing in a few months, with sentiment surrounding inflation and earnings settling down a bit, and technical conditions remaining bullish. By sector, materials, energy, and industrials led the way with gains over 3%, while defensive utilities and consumer staples suffered minor declines. Real estate rose over a percent, with little change in long-term interest rates.

Several members of the Fed again called for continued higher rates in light of strong recent inflation numbers, while another remained a bit more guarded and pointed to a potential pause in hikes by summer. These comments aren’t necessarily out of nowhere, but often serve as a scripted ‘market test’ before future policy activity. Current Fed funds probabilities for the late March meeting remain at 0.25%, but chances of a 0.50% hike have risen to 30%. Expectations for Fed funds continue to run hot, with both the level of rate and duration of tight policy pushing the curve higher in recent weeks. (For example, the highest probability outcome for the December 2023 Fed funds midpoint has moved from 4.625% at year-end to 5.375% by Friday.)

Economic Update 2-27-2023 

• Economic data for the holiday-shortened week included U.S. GDP data for Q4 that stayed solidly positive but with a slight downward revision, mixed to improved housing data, decent jobless claims, and stronger consumer sentiment. However, higher PCE inflation was interpreted negatively.
• Global equities lost ground last week as higher inflation readings continued to sustain assumptions for tighter central bank policy. Bonds suffered during the week as well, due to the same factors elevating interest rates. Commodities were mixed with crude oil little changed, but natural gas prices seeing some supply-driven recovery.

U.S. stocks fell back slightly last week as both producer and consumer inflation failed to cool as fast as was hoped, coupled with strong retail sales figures. This, of course, was taken to imply a Fed that stays hawkish for longer, with perhaps even another quarter-point hike mid-year now baked into some estimates. In recent weeks, a 5.00% possible terminal rate has now morphed closer to 5.25-5.50%, although the sharp increases seem to still be in the rear-view mirror. By sector, a mix of growth (consumer discretionary and communications) and defensives (staples and utilities) earned positive returns, while energy fell by over -6% on the losing side.

Economic Update 2-22-2023 

• Economic data for the week included producer and consumer prices staying elevated, although still decelerating on a year-over-year basis. Industrial production was little changed, while several regional manufacturing indexes showed divergent results. Housing data was also mixed.    
• Equities ended in varied directions last week, with flattish U.S. returns, while Europe gained, and Asia fell back. Bonds also lost ground with interest rates moving higher along with persistent inflation concerns. Commodities fell across the board, along weaker energy prices and a stronger dollar. 

U.S. stocks fell back slightly last week as both producer and consumer inflation failed to cool as fast as was hoped, coupled with strong retail sales figures. This, of course, was taken to imply a Fed that stays hawkish for longer, with perhaps even another quarter-point hike mid-year now baked into some estimates. In recent weeks, a 5.00% possible terminal rate has now morphed closer to 5.25-5.50%, although the sharp increases seem to still be in the rear-view mirror. By sector, a mix of growth (consumer discretionary and communications) and defensive's (staples and utilities) earned positive returns, while energy fell by over -6% on the losing side.

Economic Update 2-14-2023 

• In an unusually light week for economic data releases, consumer sentiment improved and jobless claims continued to come in at low levels. Bank lending standards have continued to tighten, due to recession fears.
• Equities were mixed to lower last week, despite little news. Bonds fell back as interest rates ticked higher. Commodities gained overall, as crude oil prices soared.

U.S. stocks ended lower last week on net, with little meaningful economic news to drive sentiment, although large cap stocks outperformed small cap stocks. Most sectors were little changed on the week, with the exception of energy, which gained almost 5% with higher oil prices, and communications, with fell -6%, led by a poor display by Alphabet/Google in an artificial intelligence demonstration. Real estate also fell back -2% along with higher interest rates.

Earlier week gains were driven by Fed Chair Powell’s reiterated remarks about the economy having entered a ‘disinflationary’ phase, although it didn’t fully back away from a hawkish tone if labor conditions remain strong. This was interpreted as positive for a continued wind-down of rate hikes for coming months. (The market obsession with what the Fed is planning is obviously a persistent theme of the past several months.) President Biden’s State of the Union address Tues. evening offered little new policy information, although a ‘unity’ message across the aisle and discussions with House Speaker McCarthy offered hope for a debt ceiling solution before the last minute, to prevent a 2011-like episode. The speech also focused more on domestic economic growth, jobs, and inflation than it did foreign concerns, highlighting what appears to be on the minds of most voters as of late.

The Federal Reserve Open Market Committee raised the Fed funds rate today by 0.25% to a range of 4.50-4.75%. The vote was unanimous, and continued a deceleration in tightening, after four straight 0.75% moves in 2022, and capped by 0.50% in December. Last year’s hiking pace was the fastest and steepest since the early 1980s.

The formal statement language noted that overall indicators point to modest growth in spending and production, with job gains being robust, and unemployment remaining low. Importantly, they note that inflation has ‘eased’ (a change from the Dec. statement, with ‘pandemic’ effects being removed) with the Russia/Ukraine war still contributing to global uncertainty. They also noted that further rate hikes would be appropriate, although the overall language appears tamer than last year.

According to CME Fed funds futures¹, probabilities pointed to an over-99% chance of a quarter-percent change, with chances of a half-percent hike having steadily fallen as inflation has slowed as well as recent more dovish Fed commentary. Looking at the rest of the year, another 0.25% is expected by March (to 4.75-5.00%). By June, the highest odds point to a pause, which stays intact through Sept., while odds for Dec. show either a -0.25% or -0.50% drop from the peak level. Therefore, 5.00% still remains the expected ‘terminal rate’. The drop-off in late 2023 has remained consistent from recent Fed meetings and coincides with expectations for the U.S. economy to fall into recession.

Economic Update 1-30-2023 

• Economic data for the week included U.S. GDP coming in for Q4 at a stronger pace than expected, in addition to positive reports for durable goods orders, new home sales, and consumer sentiment.
• Global stocks rose last week, with the U.S. leading the way, upon rising hopes for the economy achieving a soft landing and inflation easing. Bonds were little changed on the week. Commodities were mixed, with both crude oil and natural gas prices falling due to higher supply pressures.

U.S. stocks were mixed last week, with offsetting weaker economic reports and improved producer inflation readings. Sentiment mid-week took a turn downhill due to lower retail sales and industrial production numbers, as well as a large layoff announcement from Microsoft and Google. Thus far, layoff announcements have been concentrated in the tech industry, but markets appear to be awaiting a broader spread. Labor market erosion seems to be one of the key factors the Fed is anticipating in finding a fed funds rate peak. Sector results were oddly mixed, with communications (mostly Alphabet/Google), technology, and energy leading the way; industrials fared worst, along with normally defensive consumer staples and utilities. Real estate also fell back by nearly a percent.

Economic Update 1-23-2023 

• In a shortened week, economic data included weaker results for retail sales, industrial production, and some regional manufacturing activity. Housing sales and starts continued to decline; on the other hand, homebuilder sentiment surprisingly improved.
• Global equities were mixed to higher last week, due to mixed economic data, but also increased signs of falling inflation and optimism over China’s reopening. Bonds ticked higher as interest rates fell back along most of the yield curve. Commodities also rose with expected higher demand in coming months.

U.S. stocks were mixed last week, with offsetting weaker economic reports and improved producer inflation readings. Sentiment mid-week took a turn downhill due to lower retail sales and industrial production numbers, as well as a large layoff announcement from Microsoft and Google. Thus far, layoff announcements have been concentrated in the tech industry, but markets appear to be awaiting a broader spread. Labor market erosion seems to be one of the key factors the Fed is anticipating in finding a fed funds rate peak. Sector results were oddly mixed, with communications (mostly Alphabet/Google), technology, and energy leading the way; industrials fared worst, along with normally defensive consumer staples and utilities. Real estate also fell back by nearly a percent.

Economic Update 1-18-2023 

• Economic data for the week included consumer price inflation that continued to decelerate to close out 2022, but still remains high. Other positive news included jobless claims falling back and an improvement in consumer sentiment.
• Equities fared well globally last week to continue a winning streak in the new year, thanks to lower inflation and optimism over the current earnings season. Bond prices rose along with falling interest rates. Commodities also gained, helped by a weaker U.S. dollar and stronger crude oil prices.

U.S. stocks were led higher by an improved CPI inflation reading, as well as optimism over Q4 earnings. Gains were led by traditional ‘growth’ sectors last week, at a pace of 4-5% in consumer discretionary, technology, and communications. Lagging were defensive sectors such as consumer staples, which was the only loser for the week. Real estate also gained over 4% last week, as interest rates fell back.

Economic Update 1-03-2023 

• Economic data for the week included housing prices that continued a decline from peak levels, as well as a drop in pending home sales. Some regional PMI data improved, while jobless claims remained at a steady low level.
• Global equities were flat to down last week to close out 2022. Fixed income also fell back as interest rates ticked higher. Commodities gained ground last week, led by crude oil prices.

U.S. stocks ended flattish on net, in a typical low-volume holiday trading week, despite a few days of heightened volatility. Sector results were mixed, with gains in financials and energy; decliners were led by materials and consumer staples. Real estate also fell back with higher interest rates. For 2022, in keeping with corporate earnings results, the only positive returns originated from the energy sector (up over 60%). As expected in a negative year, defensive groups consumer staples, health care, and utilities outperformed with flattish results, while ‘value’ generally outperformed ‘growth’ by a substantial degree, with minimal losses for the former and a substantial bear market in the latter. Real estate also declined beyond the S&P 500, punished by higher interest rates.

• Economic data for the week included consumer inflation decelerating at a faster degree than expected; however, the Federal Reserve and other global central banks maintained policies of raising interest rates at a fast clip. Retail sales and industrial production both declined, continuing a trend of weaker key economic data, while several regional manufacturing indexes were mixed.
• Global equity markets fell back along with continued-hawkish central bank language. Domestic bonds, however, gained as long-term rates fell along with slower growth expectations. Commodities were mixed, with crude oil prices moving higher. 

U.S. stocks fell back last week as a hawkish Federal Reserve kept rhetoric high for continued rising rates, dampening investor sentiment. Equities had seen an early 2% bump on Tues. as CPI came in at a more tempered pace than expected, showing more signs of a downward trend. CPI (and the Fed) are two of the most critical headline items for investor sentiment as we look into 2023. Additionally, Friday represented a ‘quad witching’ day, on which $4 tril. worth of options contracts expired—such days have been prone to higher than average volatility as investors reposition.

By sector, only energy saw gains approaching 2%, in keeping with higher oil prices, while all other categories lost ground to various degrees. In, ‘growth’, consumer discretionary fell back by nearly -4%, lagging all other sectors. Real estate also declined by -2%.

Foreign stocks declined in line with U.S. equities, with emerging markets faring slightly better than developed. The ECB and Bank of England each raised rates at the same 0.50% pace as the Fed, although with similarly hawkish language. Otherwise, manufacturing sentiment generally continued to run at contractionary levels.

Economic Update 12-05-2022 

• Economic data for the week included an upward revision to Q3 U.S. GDP, higher personal income/spending, as well as a positive surprise from the November employment situation report. These were offset by a decline of ISM manufacturing into contraction, lower home prices, and weaker consumer sentiment.
• Global stock markets fared positively last week, with foreign outperforming domestic. Bond prices also rose as yields across all maturities fell back; foreign bonds were also aided by a weaker dollar. Commodities gained, due to a rise in prices for industrial metals and crude oil.

U.S. stocks gained ground on net last week, with ‘growth’ sectors communications and consumer discretionary leading the way with sizable gains of 2-3% each, while energy lagged, down -2%.

Indexes began the week on a sour note, with rising Covid cases and protests in China that raised uncertainty and weighed on investor sentiment generally; however, soothing comments from government officials alluded to an upcoming evolution in lockdown policy. By mid-week, strong Congressional support for the Railway Labor Act looked to head off a potential strike by railroad workers—a bill that would require companies and unions to accept labor agreements even if rejected by members, as well as other measures to avoid disruptions for that economically-critical sector. (The last government action to settle railroad labor issues was in 1992, so there has been a precedent.)

Stocks were helped mid-week as well with indications from Fed Chair Jerome Powell that the December rate hike will most likely be at a ‘moderate pace’ of 0.50%, reassuring investors, despite an otherwise hawkish tone that still alluded to a terminal rate near 5%. Additionally, the S&P 500 value rising above its 200-day moving average level has tended to draw attention from a technical standpoint as a ‘bullish’ signal, although these can be imprecise around turning points. By Friday, a strong employment situation report brought back the ‘good news is bad news theme’, as the hoped-for weakening needed for the Fed to reassess rate policy didn’t occur.

Economic Update 11-16-2022 

• Economic data for the week included consumer price inflation coming in still higher relative to history and the Fed’s target, but at a slower pace than last month. The widely-anticipated mid-term elections resulted in a likely divided government, although vote counts were still ongoing by the end of the week. Consumer confidence again fell back, while jobless claims were little changed.
• Global equity markets experienced a strong week, buoyed by the positive CPI inflation surprise, with foreign stocks especially benefitting from a drop in the value of the dollar. Bonds also fared well as long-term interest rates pulled back. Commodities were mixed, with crude oil lower and metals higher.

U.S. stocks continued a volatile fall week, with inputs driven by Tuesday’s mid-term election results (which took some time to tabulate and with results not as conclusive for a divided government as some had hoped) and Thursday’s consumer price index reading, which showed some improvement downward on a trailing 12-month basis. These are two items that financial markets have been waiting for clarity on and better news about, with uncertainty always being closely tied to volatility. That the latter would fuel a positive market response was not a huge surprise. Additionally, and perhaps even more importantly, a member of the Fed noted that 4.5% might be an appropriate place for a pause in rate hikes, which goes along with the lower inflation reading. With the current fed funds rate at 3.75-4.00%, that’s not far away. The sharp Thursday gain was the best single day in over two years.

By sector, growth stocks saw a strong rebound last week, led by technology and communications, up 9-10% each. Speculation was the winning approach last week, with technology firms with no profits outperforming higher quality companies. Defensive sectors health care and utilities came in last, but still rose over a percent for the week. Real estate rallied by over 7% along with interest rates falling back.

Economic Update 10-24-2022

• Economic data for the week included a rise in industrial production, mixed regional manufacturing indexes, and a variety of weaker housing sales and sentiment reports. The index of leading economic indicators continues to lean towards a recession in coming months.
• U.S. equity markets saw sharp gains last week, due to stronger earnings and rising hopes for a Fed potentially slowing down on rate hikes, with foreign stocks also positive. Bonds fell back due to still-rising long-term yields. Commodities were mixed.

U.S. stocks saw gains last week with corporate earnings reports coming in better than expected. Additionally, a large batch of options expiring by the end of the week added to volatility. While comments from Fed members earlier in the week pointed to ongoing hawkishness, these were talked back later in the week with possible indications the Fed may slow or pause hikes pause early in 2023 to assess their impact thus far. Of course, such Fed comments aren’t made in a vacuum, and tend to be carefully worded when they are shared. Financial markets took this as a positive sign for better clarity on long-term yields. Every sector ended the week in the positive, led by energy stocks up 8%, followed by materials and technology. Real estate rose nearly 3% despite higher interest rates.

Earnings season for Q3 has begun, with several large firms in the financial sector having already reported. So far, rising loss provisions (a discretionary earnings item to a large degree) in expectation for recession have resulted in lowered earnings in that sector. Per FactSet, 20% of S&P members have now reported, with another half of the index reporting this coming week. Expectations have become more variable, with 115% earnings growth in energy barbelled by double-digit declines in financials, materials, and communications. As a whole, S&P 500 estimates for Q3 have fallen by a percent, but remain a positive 1.5% on a year-over-year basis, although nearly three-quarters of firms have surprised positively on an earnings and revenue basis. For the full 2022 calendar year, earnings growth is expected to be 6-7%, and rising to 7-8% for 2023. The current 12-month forward P/E is 15.6, just below the 10-year average, and right around the long-term average number.

Economic Update 9-12-2022

• On a holiday-shortened week, economic data for the week included the ISM services index strengthening, and mixed results for jobless claims.

• Global equity markets gained last week, as central bank actions and member comments solidified a commitment to fighting inflation without overly damaging the global economy, in addition to inflation pressures themselves cooling. Bonds were mixed, with treasuries down due to higher rates, and high yield seeing gains. Commodities were mixed, with energy falling back due to natural gas prices, while crude oil was little changed.

U.S. stocks gained ground last week, in a reversal of recent negativity, led by lower energy prices and well-accepted Fed comments about the ability to achieve a soft landing. Every sector was in positive territory, led by most cyclical consumer discretionary and materials, each up over 5%. Energy lagged, up less than a percent. Real estate also gained several percent, despite higher longer-term interest rates, which have been a headwind for the group.

Foreign stocks came in a bit behind U.S. stocks, with Europe and the U.K. several percent higher, while gains in Japan and emerging markets were more tempered. More solidified plans by several European nations (such as household energy cost caps in the U.K.) in handling the energy crisis resulting from gas shortages appeared to improve sentiment. The magnitude of some fiscal aid is approaching or exceeding that of the Covid response. The ECB raised interest rates by 0.75% on Thurs., which, coupled with hawkish language, has raised expectations for further hikes later in the year. Chinese producer price inflation fell unexpectedly, which helped global sentiment later in the week.

• Economic news for the week included the Federal Reserve raising interest rates sharply in their fight with inflation. Data was mixed, with the index of leading economic indicators and retail sales softer, while industrial production improved. Producer prices remained high, but showed some deceleration. Housing starts and sentiment continued to decline, not helped by rising mortgage interest rates.
• Global equity markets responded negatively to persistent worries over high inflation, rate hikes, and rising recession risks. Bonds fell back on higher yields globally, and pressure on credit. Commodities fell broadly with a pullback in crude oil and natural gas prices.

Fed Note:

The Federal Reserve Open Market Committee continued its aggressive tightening pace in the June meeting, by raising the key fed funds interest rate today by 0.75%—to a new range of 1.50-1.75%. This was the largest single meeting hike since 1994, and featured one dissenting vote (by a member favoring 0.50%). Why 0.75% and not 0.50%? It appeared the most recent consumer price index reading (still persisting around peak levels) and longer-term inflation expectations in the recent Univ. of Michigan consumer sentiment survey in recent days may have been catalysts for the stronger message and front-loading of hikes from later to earlier meetings....

Economic Update 6-13-2022

• Economic data for the week included consumer price inflation coming in high in keeping with expectations. Consumer sentiment remains challenged, at its lowest levels in decades, due to high inflationary pressures, notably with gasoline. Jobless claims were little changed, when adjusted for seasonal effects.
• Global equity markets fell back last week, as high inflation reports and poor consumer sentiment dampened risk-taking. However, emerging market stocks fared better as pandemic conditions in China appear to be improving. Bond markets fell back again with interest rates rising across the board. Commodities were mixed overall, but oil and natural gas prices continued to move higher.

Economic Update 6-06-2022

• Economic data for the holiday-shortened week included a rise in manufacturing sentiment and small drop in services sentiment, despite both remaining solidly expansionary. House prices continued to increase at a dramatic pace. The May employment situation report outpaced expectations, although results were not as strong as in recent months.
• Global equity markets fell back from a steep recovery the prior week, except for emerging markets, which gained ground as Chinese lockdowns eased. Bond prices declined as the result of higher treasury interest yields. Commodities were mixed, with higher energy prices offsetting a pullback in grains.

Economic Update 5-30-2022

• Economic data for the week included a slight downward revision in first quarter GDP, positive durable goods orders, along with weaker new home sales data and consumer sentiment.
• Global equity markets rose broadly last week, with U.S. stocks outperforming foreign. Bonds also fared positively, with interest rates pulling back upon a possible peaking in inflationary pressures. Commodities rose due to gains in crude oil and natural gas.

Economic Update 5-23-2022

• Economic data for the week included gains in retail sales and industrial production. On the other hand, regional manufacturing sentiment fell back, as did several housing metrics as activity slowed along with historically-low residential home inventories.
• Global equities were mixed on the week, with U.S. stocks down sharply once again, while foreign stocks gained ground. Bonds fared positively, with interest rates backing off of peaks. Commodities gained a bit, led by industrial metals rather than oil.

Economic Update 5-16-2022

• Economic data for the week included higher readings for the producer price and consumer price indexes—continuing a trend of higher inflation. However, import prices saw some relief. Continuing jobless claims fell further to very low levels, indicating labor market strength.
• Global markets fell back sharply last week, as volatility amidst a variety of geopolitical and financial crosswinds as well as a rising interest rate regime kept sentiment depressed. Bonds reversed course and saw gains as longer-term yields fell back from recent peaks. Commodities were mixed, with little change in oil prices, which remained high.

Economic Update 5-09-2022

• Economic data for the week included the Federal Reserve raising short-term interest rates by a half-percent, an amount not seen in over two decades. The employment situation report for April continued to show a strong improvement in jobs, while the unemployment rate remained unchanged at a tight level. ISM manufacturing and services fell back a bit, but remained solidly in expansionary territory.
• Global equity markets experienced another volatile week, with U.S. stocks outperforming foreign markets. Bonds also declined along with rising interest rates, prompted by the Fed policy move. Commodities ended higher, driven by tight crude oil supplies.

The Federal Reserve Open Market Committee turned more aggressive in this month’s meeting by raising the key fed funds interest rate by 0.50%—for the first time in over twenty years by that amount—to a new range of 0.75-1.00%. There were no dissents. This was in line with consensus estimates, steered by Fed member comments over the past few weeks that guided markets to anticipate this more hawkish outcome.

The formal statement language noted that economic activity edged down in Q1, although household and business spending remains strong, as are job gains. Inflation was described as remaining elevated, reflecting ongoing pandemic disruptions as well as higher energy prices, although broadened to other areas. Ukraine was also mentioned as an additional source of geopolitical uncertainty, and Covid lockdowns in China continuing to weigh on supply disruptions. In addition to today’s rate hike, ‘ongoing’ rate increases were seen as appropriate. Guidelines for balance sheet reduction were also outlined, set to begin in June at $47.5 bil./mo., ramping up to $95 bil./mo. after three months.

Based on CME data, formal probabilities of a 0.50% fed funds hike ticked up a few percentage points in recent days to just under 100%¹. In addition, a 0.75% rate increase is the highest expected outcome for June. The September level is predicted to reach 2.50-2.75% (around the Fed long-term neutral rate), and 3.00-3.25% by December, although that features more outcome dispersion on both sides. The latest period available, Jul. 2023, shows the highest probability being 3.50-3.75%, implying some slowing in the hiking pace by that time. Regardless, markets are predicting a much more aggressive Fed pace than we’ve been used to, although these probability markets are subject to rapid change.

The Fed’s evaluation metrics remain mixed, in terms of high inflation being offset by still decent, but decelerating economic growth fundamentals: ...

Economic Update 5-02-2022

• Economic data for the week included a surprisingly negative U.S. GDP result for the first quarter. Housing data was mixed, with slower sales, but home prices reached record highs. Consumer sentiment fell back a bit, but durable goods rose, and jobless claims remained positive, and near multi-decade lows.
• Global equity markets fell back sharply last week, due to mixed earnings reports, high commodity prices, slowing growth, and Ukraine concerns. Bonds were little changed in the U.S., but were negatively impacted abroad by an especially strong U.S. dollar. Commodities were mixed, with higher energy prices offsetting declines in metals.

Economic Update 4-25-2022

• Economic data for the week included declines in several national housing numbers, such as existing home sales and homebuilder sentiment; however, housing starts rose a bit. The index of leading economic indicators showed growth, but at a tempered pace from preceding months.
• Global equity markets fell back last week, in keeping with continued concerns over the ongoing Ukraine war as well as hawkish rhetoric from global central bankers. Bonds declined due to that same rhetoric, which pushed intermediate-term interest rates higher, and foreign bonds hurt by a stronger dollar. Commodities reversed trend last week, by falling back across the board, notably in energy.

Economic Update 4-18-2022

• Economic data for the week included gains in retail sales, as well as improvement in consumer sentiment, and continued healthy jobless claims. However, producer and consumer price inflation continued to come in at multi-decade high levels.
• In a holiday-shortened week, global equity markets were mixed to lower, as high inflation readings and negative sentiment about Ukraine weighed on risk-taking. Foreign outperformed the U.S. slightly due to a weaker dollar. Bonds continued to lose ground as interest rates climbed higher in keeping with high CPI and PPI readings. Commodities also gained, with crude oil and natural gas prices rising sharply.

Economic Update 4-11-2022

• In a light week for economic data, ISM services sentiment continued to show strength, while the minutes from the most recent March Fed meeting laid out a plan for faster rate hikes and a plan to allow for a balance sheet run-off of treasury and mortgage bonds.
• Equity markets in both the U.S. and abroad fell back last week, as interest rates ticked higher and economic concerns weighed on sentiment. Bonds suffered along with rising rates. Commodities were mixed, with gains in agriculture offset by less volatile energy prices last week.

Economic Update 4-04-2022

• Economic data for the week included minimal revisions to prior-quarter U.S. GDP growth, and a slight decline in the pace of still-positive ISM manufacturing sentiment. Housing prices continued to rise at a solid clip, while labor markets continue to demonstrate a recovery, notably in nonfarm payrolls for March.
• U.S. equity markets were little changed on net, and were outshined by gains in foreign markets. Bonds gained ground to end the quarter, as interest rates fell back from highs. Commodity prices fell back, led by energy, along with a potential increase in crude oil supply from government reserves.

Economic Update 3-28-2022

• Economic data for the week included a decline in durable goods orders and new home sales, and consumer sentiment fell to multi-year lows. However, jobless claims again reached multi-decade levels of strength.
• U.S. equity markets gained ground last week, despite a more hawkish Fed; foreign markets were mixed, based on the relative impacts of high energy prices and the war in Ukraine. Bonds fell back sharply, as hawkish central bank language caused interest rates to drift higher in a variety of maturities. Commodities continued to gain across the board along with supply shortages, notably in energy and metals, due to the war in Ukraine and associated Russian sanctions.

Economic Update 3-21-2022

• In economic news, the Federal Reserve raised interest rates for the first time in several years, by a quarter percent. In other data releases, retail sales and industrial production increased, as did housing starts, while jobless claims also came in better than expected. Producer prices continued their rise, and the index of leading economic indicators improved.
• Global equity markets rose last week with a tempering in commodity prices, a Fed that acted on the more tempered side, and rumors of progress in Ukraine-Russia peace talks. U.S. bonds fell back as interest rates ticked higher, along with hawkish Fed language. Commodities fell back due to concern over lower demand in China, due to Covid lockdowns.

The Federal Reserve Open Market Committee raised the key fed funds interest rate today by 0.25%, to a new range of 0.25-0.50%. This first hike in four years was as expected, with the Fed communicating their intention and amount fairly directly in recent weeks. However, at least until the Russian invasion of Ukraine, there was debate about whether the hike could be as high as 0.50%. In fact, there was one dissent in the committee decision, by Fed St. Louis President Bullard, who preferred the 0.50% hike....

Economic Update 3-14-2022

• Economic data for the week included the consumer price index rising to another multi-decade high, job openings continued to show strength, while jobless claims were little changed.
• Global equity markets lost ground again in keeping with the geopolitical and economic aftermath of the Ukraine conflict, although hopes for diplomacy resulted in a few positive days. Bonds fell back as well, with interest rates rising on net along with record inflation data. Commodities prices pulled back after a strong run since the start of the conflict.

Economic Update 3-07-2022

• Economic data for the week included a robust employment situation report, as well as other labor metrics, and improved manufacturing and construction activity.
• Global financial market sentiment continued to be driven by the Russia-Ukraine conflict, with U.S. and especially foreign stocks losing ground and staying in correction territory. Bonds were mixed, with higher-quality safe haven debt faring positively. Commodities experienced sharp gains, led by crude oil and grains—exports most affected by Russian and Ukrainian supplies.

Economic Update 2-28-2022

• Economic data for the week included a slight revision to prior-quarter GDP, a continued gain in house prices, and continued lower jobless claims. However, the Russian invasion of Ukraine dominated most other news.
• Global equity markets initially fell sharply last week, in the ramp-up to the Russian invasion, which had been brewing for weeks. However, stocks recovered after the military activity started and rumors of negotiations came. U.S. bonds started strong but fell back as interest rates ticked higher along with a return to inflation worries. Commodities gained across the board, notably in energy and agriculture, due Russian and Ukrainian-specific supply concerns.

A variety of conflicts involving major world powers have tended to historically raise short-term volatility in global financial assets. However, market damage has tended to be short-lived, as in the magnitude of a typical market correction (-10% or a bit more). One has currently been already underway since January, mostly due to interest rate fears, but also the probability of Russian military action in the Ukraine. Markets have reacted worse (such as -20% bear market-type declines) during broader regional conflicts, such as World War II or the Israel/Arab war in 1973. In the majority of cases, though, recoveries have also been relatively swift, and there has not been as much direct long-term economic impact as one might fear...

Economic Update 2-22-2022

• Economic data for the week included retail sales that came in higher than expected, as well as gains in industrial production, mixed regional manufacturing sentiment and housing metrics, and a slight pullback in the index of leading indicators.
• U.S. and foreign equity markets fell back last week, as tensions over Russia and Ukraine wavered (generally rising), in addition to continued strong U.S. inflation rhetoric. Bonds were mixed, with yields little changed, but credit spreads widened. Commodities were also mixed, with gains in metals offset by a pullback in oil prices by several percent.

Economic Update 2-07-2022

• Economic data for the week included a much stronger than expected employment situation report for January, as well as a pullback in the ISM manufacturing and services indexes, although the two still lie solidly in expansion.
• Global equity markets bounced back last week, with decent economic data and some improvement in the Covid caseload. Bonds fell back across the board, as interest rates continued to tick higher, along with the consensus opinion that central banks will be raising rates through 2020. Commodities gained ground again last week, led by crude oil prices, with high demand continuing to surpass more limited supply.

Economic Update 1-31-2022

• Economic data for the week included the Fed signaling upcoming rate hikes, a stronger-than-expected GDP growth report for Q4, and robust housing data, but a weaker durable goods report.
• U.S. equity markets ended mixed to higher in a volatile trading week, with large cap stocks outperforming small caps. Foreign stocks generally were negative, in keeping with a stronger dollar. Bonds fell back broadly along with higher interest rates following a hawkish Federal Reserve. Commodities gained, mostly in the energy sector—particularly due to weather, Ukraine, and market technicals in natural gas.

Fed Note:

The Federal Reserve Open Market Committee made no changes in interest rates today, as expected, staying with the target of 0.00-0.25%. But, times are changing.

The formal statement language was significantly simplified from December, that economic activity and employment have ‘continued to strengthen’, but also acknowledged the sharp recent rise in Covid cases on particular sectors. High inflation was attributed to ongoing ‘supply and demand imbalances’. However, the FOMC expects that it will ‘soon be appropriate’ to raise interest rates. The tapering off of treasury and mortgage-backed bond purchases was ramped up, scheduled to end in ‘early March’....

Economic Update 1-24-2022

• Economic data for the holiday-shortened week included mixed regional manufacturing results and housing data, higher jobless claims, but continued gains in the index of leading indicators.
• U.S. equity markets, especially the Nasdaq-heavy group of technology stocks, fell back near or into correction territory. Foreign stocks fared slightly better than U.S., although also in the negative. Bonds were mixed, based on risk level. Commodities gained a bit on net, along with continued tight supplies in crude oil markets.

Economic Update 1-18-2022

• Economic data for the week included continued historically-strong producer and consumer inflation readings, while retail sales came in weaker than expected.
• U.S. equity markets fell back last week, as investor continued to digest tighter monetary policy and the impact of the Covid omicron variant. Foreign stocks fared a bit better, due to a weaker dollar. Bonds were mixed, with lower-rated bonds outpacing investment-grade, with yields moving slightly higher. Commodities gained in keeping with a weaker dollar and rising crude oil prices.

Economic Update 1-10-2022

• Economic data for the week included a disappointment in December nonfarm payrolls, although the unemployment rate continued to improve. ISM manufacturing and services both fell back for the month, but remained solidly in expansion. Minutes from the Dec. Fed meeting showed a more hawkish tone than did the original statement released at the time.
• U.S. equity markets fell back along with higher yields, hawkish Fed meeting minutes, and higher commodity prices. Foreign stocks fared better, with mixed results. Bonds fell back sharply, as a result of higher long-term interest rates. Commodities gained, due to a geopolitical-based spike in energy prices.

Economic Update 1-3-2022

• For the final week of 2021, sparse economic data included a continued rise in national home prices, although pending sales fell back. Jobless claims continued to show downward improvement.
• Global equity markets ended the year on a positive note last week. Bonds were mixed, as interest rates were little changed. Commodities gained more ground, with help from a weaker dollar and hopes for continued demand recovery.

Economic Update 12-27-2021

• Economic data during the holiday week included a slight revision upward for Q3 U.S. GDP, and a slight improvement in consumer confidence. Durable goods orders and housing metrics were mixed.
• Global equity markets gained broadly last week, as fear of the Covid omicron variant’s severity seemed to subside a bit. Bonds were mixed to lower along with higher interest rates. Commodities also fared well, particularly in oil and metals, where the demand outlook was again viewed more positively.

Economic Update 12-20-2021

• Economic data for the week included the Federal Reserve announcing a faster pace in the tapering off of bond purchases, reflecting stronger growth and inflation pressures, as seen by last week’s high PPI number. Retail sales and industrial production rose, while several regional manufacturing indexes were mixed. Housing metrics also continued to improve.
• Global equity markets fell as fears of the omicron variant and Fed tightening intensified toward the end of the week. Bonds fared well with investors avoiding risk, which pushed long-term rates lower. Commodities were mixed, with gains in metals offset by declines in energy.

Economic Update 12-13-2021

• In a lighter week for economic data, releases included consumer price inflation reaching a 40-year high, while jobs statistics continued to show improvement.
• Global equity markets rose with waning concern over the severity of the Covid omicron variant, and its potential impacts on economic growth. Bonds were mixed, with high-grade debt falling back due to rising rates, while bonds of lower credit quality fared positively. Commodities gained as crude oil prices bounced back strongly.

Economic Update 12-06-2021

• Economic data for the week included stronger manufacturing data and higher home prices, while consumer sentiment fell back a bit. The employment situation report came in far weaker than expected on a headline basis, although other data appeared more robust.
• U.S. equity markets fell back last week upon the Federal Reserve’s evolving opinion of inflation and the uncertainty surrounding the new Covid omicron variant; foreign stocks, however, fared better. Bonds gained ground in keeping with investors moving away from risky assets. Commodities lost ground, with the prices of crude oil and natural gas continuing to fall on demand concerns.

Economic Update 11-29-2021

• In a holiday-shortened week, economic data included stronger personal income and spending, as well as recovering consumer sentiment, while durable goods orders fell back. Housing data was strong in both new and existing home sales.
• Global equity markets were benign until Friday, when the emergence of a new Covid variant rattled investors. U.S. treasury bonds fared slightly positive due to flows away from risk, while credit and emerging market bonds fell back. Commodities also fell back, highlighted by a rapid correction in the price of crude oil.

Economic Update 11-15-2021

• Economic data for the week included higher ongoing readings for producer and consumer price inflation—the latter rising at the fastest year-over-year rate in three decades. The trend in improving jobless claims also slowed, and consumer confidence fell.
• Global equity markets declined in keeping with a higher U.S. inflation report, weaker sentiment, and rising foreign Covid cases. Bonds reversed course and pulled back as long-term rates ticked higher. Commodities were mixed, but energy fell back contrary to recent trends.

Economic Update 11-08-2021

• Economic data for the week included the Federal Reserve beginning its ‘taper’, coupled with weaker manufacturing results, but new all-time highs in services sentiment. The employment situation report for October surpassed expectations, reversing disappointment of the prior month.
• Global equity markets gained with continued economic and earnings improvement, and less hawkish-than-expected world central bank policy. Bonds fared well globally as interest rates declined. Commodities ended the week mixed, with declines in energy and industrial metals offset by gains in precious metals.

Economic Update 11-01-2021

• Economic data for the week included weaker-than-expected U.S. GDP growth for the third quarter, and declines in durable goods orders and pending home sales. However, home prices, new home sales, consumer confidence, and jobless claims all improved.
• Global equity markets were mixed, with gains in the U.S. offset by little change in Europe, and declines in emerging markets. Domestic bonds fared positively due to a decline in interest rates. Commodities featured little change in energy prices, and mixed results in grains and metals.

Economic Update 10-25-2021

• Economic data for the week included manufacturing indexes which leveled off a bit from highs, while on the positive side, jobless claims fell to new cyclical lows. Home sales and housing starts were mixed, with prices moving higher and inventories remaining tight.
• Global equity markets continued their positive performance, due to strong earnings results for the prior quarter. Bonds suffered, as interest rates rose again in keeping with improving conditions. Commodities were mixed, with metals falling back, while energy again experienced gains.

Economic Update 10-18-2021

• Economic data for the week included stronger-than-expected results for retail sales, while inflation continued to come in elevated for producer, consumer, and import prices. Job openings and jobless claims also continued to strengthen as labor markets show improvement.
• Global equity markets rose along with improving economic data, and inflation that came in no worse than expectations. Bonds also gained as long-term interest rates declined. Commodity prices continued to rise with prices for copper and other metals overtaking the energy story last week.

Economic Update 10-11-2021

• Economic data for the week included improvement in ISM non-manufacturing sentiment, ADP private employment, and jobless claims. However, the employment situation report for September came in short of expectations.
• U.S. equity markets gained last week, in contrast to a negative September, while foreign regions ended mixed. Bonds lost ground globally as interest rates rose, in keeping with persistent inflation concerns. Commodities gained several percent, as crude oil prices reached a multi-year high upon strong demand and lack of available supply.

Economic Update 10-04-2021

• Economic data for the week included a slight revision higher in Q2 U.S. GDP growth, stronger durable goods orders and ISM manufacturing sentiment, as well as stronger housing price and sales data. Jobless claims and consumer sentiment were mixed.
• Global equity markets fell back again last week, with continued investor concerns about inflation, rising interest rates, and an upcoming treasury debt ceiling. Bonds declined as well, in keeping with higher rates. Commodities continued to see gains, on the back of spiking petroleum prices.

Economic Update 9-27-2021

• Economic data for the week included no action by the Federal Reserve regarding interest rates (although they gave strong signals about upcoming tapering). Otherwise, existing home sales fell, new home sales and housing starts rose, while jobless claims were mixed.
• U.S. equity markets rebounded from a volatile start to the week to gains, while foreign equities ended mixed. Bonds lost ground across the board as investors interpreted a somewhat optimistic Fed into higher interest rates. Commodities rose across the board, led by a sharp supply-driven rise in the price of crude oil.

Economic Update 9-13-2021

• On a holiday-shortened and light week for economic releases, data included improvement in job openings and jobless claims, as well as higher producer price inflation.
• Global equity markets fell back throughout the course of the week, as continued Covid cases and rising prices have raised fears about the durability of the recent growth stretch. Bonds were little changed in the U.S., while foreign debt was negatively impacted by a stronger dollar. Commodities were mixed, with gains in industrial metals and energy offset by declines elsewhere.

Economic Update 9-07-2021

• Economic data for the week included stronger results in the manufacturing and construction segments, while services sentiment and the monthly employment situation report came in weaker than expected. Home prices also continued to increase at historically impressive rates.
• Global equity markets gained last week, with economic data coming in as expected for the most part and little late summer news. Bonds were similarly flat in the U.S., with little trading volume, although foreign issues fared better due to a weaker dollar. Commodities ticked higher, particularly natural gas, due to recent disruptive storm activity.

Economic Update 8-30-2021

• Economic data for the week included some improvement in prior-quarter GDP, continued gains in personal income and spending, decent home sales figures, while durable goods and consumer sentiment were little changed.
• Global equity markets gained last week, as formal Pfizer vaccine approval appeared to raise hopes for continued improvement in world vaccination rates. Bonds were little changed in the U.S., but fared well abroad from a weaker U.S. dollar. Commodities gained due to the same currency effect and jump in crude oil prices, along with the Afghanistan terror attack and impending Gulf Coast hurricane.

Economic Update 8-23-2021

• Economic data for the week included weakness in retail sales, housing, as well as regional manufacturing sentiment. On the other hand, industrial production and jobless claims improved.
• Global equity markets suffered net declines last week, as the headwinds of the Covid delta variant, potentially peaking growth, and higher potential for a Federal Reserve ‘taper’, all weighed on investor sentiment. Bonds fared decently as flows moved away from risk assets, driving down rates. Commodities suffered sharp declines, as the above-noted factors were assumed to threaten economic activity and goods demand.

Economic Update 8-16-2021

• Economic data for the week included continued high readings for import and producer prices; consumer price inflation remained elevated as well, although showing signs of deceleration. Other data pointed to stronger job openings and a continued reduction in jobless claims.
• Global developed equity markets ended the week with gains generally, while emerging market and U.S. small cap lost ground. Bonds eked out small gains as interest rates again ticked down across the yield curve. Commodities earned marginally positive returns, with crude oil prices little changed for the week on net.

Economic Update 8-09-2021

• Economic data for the week included a slight drop in manufacturing, offset by continued strength in services. The July employment situation report came in stronger than expected, on both job creation and a lower unemployment rate.
• Global equity markets saw gains across the board, although emerging markets were held back a bit by China. Bonds fell back as interest rates moved higher. Commodities fell back, largely due to a sharp correction in crude oil prices based on demand fears.

Economic Update 8-02-2021

• Economic data for the week included Q2 GDP growth that came in robust, but below market expectations. Housing metrics were mixed, with strong prices but weaker sales. Consumer confidence continued to improve slightly.
• U.S. equity markets were mixed, as large caps lost ground but small caps gained. Foreign stocks were similarly mixed, with emerging markets were pulled down by volatility in certain Chinese sectors. Bonds gained slightly as interest rates continued to pull back. Commodities were helped from a weaker dollar, particularly in energy and industrial metals.

The Federal Reserve Open Market Committee made no changes in monetary policy today, keeping rates near the zero target of 0.00-0.25%. This was as expected.

The formal statement language was minimally changed. The only adjustments noted labor continuing to strengthen, but have not fully recovered; additionally, economic growth continuing to depend on the path of Covid (which has worsened in recent weeks). The most closely-watched word, ‘transitory’ (referring to current inflation drivers), was kept intact. Overall, it provided minimal new information. The Fed is establishing two permanent repo facilities, one domestic and one for international transactions. These facilities represent continued non-emergency avenues for providing liquidity to short-term funding markets as needed, rather than being started and stopped, which contain their own market signaling problems. The concept of this had been discussed in prior meetings.

Market analysis has moved to the question of when the Fed will begin (or simply begin discussing) the ‘tapering’ off of their monthly treasury and agency mortgage-backed bond purchases. Current odds seem to point to year-end, although recently higher inflation readings may have sped up the timeline by a few months.

The Fed’s evaluation metrics remain mixed, but point to an economy that is recovering from the worst of 2020: ...

Economic Update 7-26-2021

• Economic data for the week included gains in existing home sales and housing starts, along with continued rising prices and tight inventory. Jobless claims were mixed, with seasonal effects affecting near-term claims, while continuing claims showed ongoing improvement.
• U.S. equity markets rebounded into positive territory last week after a sharp Monday downturn, fueled by fears around the Covid Delta variant. Foreign stocks in developed markets gained to a lesser degree, while emerging markets lost ground. Domestic bond prices ticked slightly higher as yields and credit spreads continued to decline. Commodities were mixed, despite some early week demand concerns for crude oil, which later recovered.

Economic Update 7-19-2021

• Economic data for the week included strong consumer and producer inflation readings, as well as improvements in retail sales and industrial production. Jobless claims also continued to fall, while consumer confidence waned a bit.
• Stocks were mixed globally last week—the U.S. and developed foreign markets lost ground, while emerging markets gained. Bonds fared positively as yields on the treasury curve continued to fall. Commodities were mixed, with crude oil prices pulling back by a few percent, partially offset by ag prices.

Economic Update 7-12-2021

• During an abbreviated week, economic data included a decline in services sentiment, although the measure remained quite strong. Job openings improved, while jobless claims were mixed—as initial claims rose but continuing claims sustained their decline.
• U.S. equity markets gained slightly last week, outperforming foreign—especially emerging markets which fell back sharply. Bonds in the U.S. and developed markets gained as interest rates continued to fall, surprisingly many investors. Commodities lost ground last week, largely led by declines in the grain complex.

Economic Update 7-06-2021

• Economic data for the week included a jobs report that came in a bit better than expected, in addition to strength in  consumer confidence, home prices, and other labor metrics such as improved jobless claims. On the other hand, manufacturing sentiment declined a bit—but remained at a very high level.
• U.S. equity markets moved to new highs along with continued improving economic data, while foreign stocks were held back by Covid and inflation fears. Bonds fared well as interest rates continued to temper across the curve. Commodities gained across the board, notably in agriculture last week.

Economic Update 6-28-2021

• Economic data for the week included unchanged GDP growth for the prior quarter, as well as stronger durable goods orders and jobless claims, while both existing and new home sales fell along with continued low inventories.
• Global equity markets gained last week, led by the U.S., and particularly in small cap, due to news of a broader infrastructure agreement framework and more dovish Fed talk. Bonds were mixed, with higher rates holding back U.S. debt, while foreign bonds were boosted by a weaker dollar. Commodities gained across the board, with strength in energy and metals.

Economic Update 6-21-2021

• Economic data for the week included strength in industrial production and housing starts, but offset by weaker retail sales results. Initial jobless claims rose slightly, although the overall rolls continue to improve. The U.S. Federal Reserve kept interest rates on hold (at zero), as expected, but several committee members assumed some tightening by 2022-23.
• U.S. equity markets declined last week along with slightly more ‘hawkish’ Federal Reserve language about future interest rate policy—acknowledging a steady return to normal. Foreign stocks fared a little better in local terms, but were held back by a stronger dollar. Bonds were flattish in the U.S. on net, despite some rate volatility during the week, and outperforming foreign debt. Commodities were down across the board sharply, aside from higher prices for crude oil.

The Federal Reserve Open Market Committee made no changes in monetary policy today, keeping the target short-term interest rate at 0.00-0.25%. The official statement was little changed in substance, with wording about the hardship caused by the Covid-19 pandemic replaced by the improvement due to wider vaccinations.

The most recent Fed member estimates (seen in the ‘dot plots’) point to a greater chance of a rate hike or two by 2023 than the previous March plot. (This realization caused a quick stock market drop.) To put it into perspective, a fed funds rate of 0.25% or 0.50% a few years from now still counts as quite accommodative, even if not the zero of today. The clustering of longer-term fed funds rate expectations remains around 2.5%. This implies, assuming the 2.0% inflation target is achieved and maintained, a real yield of 0.5%. This is below the multi-decade historical norm of about 1.0% for cash, but certainty an improvement on today’s miniscule yields (welcomed by savers), even if it takes time to get there.

The key question is when will the ‘tapering’ off of ongoing $120 bil./mo. treasury and mortgage bond purchases begin? ‘Talking about tapering’ has been the much-talked-about first step, followed by actually doing it. Hardly anyone thought it would happen at today’s meeting, but the timeline has certainly moved earlier after the strength in recent months. Only once tapering goes on for a while will rates likely start rising. Interestingly, based on CBOE fed funds futures, the probability of no change today had fallen to 93%, with the remaining 7% betting on a quarter-point increase. These odds remain consistent through December.

Most of the Fed’s metrics are showing improvement, as seen in many data releases: ...

Economic Update 6-14-2021

• Economic data for the week included stronger consumer inflation results, as well as higher job openings, and continued decline in the number of weekly jobless claims.
• U.S. and European equity markets saw further gains, with accommodative policy and tempered longer-term inflation expectations swaying sentiment. Bonds earned positive returns as well, along with falling long-term interest rates. Commodities ticked higher, largely due to crude oil and natural gas prices.

Economic Update 6-07-2021

• On a Memorial-Day shortened week, economic data included strong results for manufacturing and services indexes. Employment numbers were mixed, as jobless claims improved, as did the employment situation report number, although the latter fell short of market expectations.
• Global equity markets earned positive returns last week, with stronger economic data coupled with eased worries about the duration of continued government policy support. U.S. bonds gained slightly as interest rates pulled back after a lackluster jobs data. Commodities continued to gain ground, largely due to higher oil and natural gas prices last week.

Economic Update 6-01-2021

• Economic data for the week included largely unchanged Q1 GDP estimates, and a decline in durable goods orders. On the housing side, prices continue to show strong momentum, while sales fell due to increasingly tight inventories. Jobless claims continued to improve and point to labor market repair.
• Global equity markets continued to benefit from strong economic rebound activity and consumer sentiment. Bonds also benefitted from a pullback in interest rates. Commodities were led by demand expectations for energy and metals.

Economic Update 6-08-2020

• Economic data released last week continued to show broad shutdown-based weakness over the past several months, in manufacturing, services, construction, and employment. However, some signs of improvement are being seen on the margin, which have been taken positively by financial markets.
• U.S. equity markets gained with signs of economic recovery and a strong jobs report later in the week; foreign markets moved higher to an even greater degree. Bonds lagged with interest rates ticking higher on this same strength. Commodities rose with another strong recovery in crude oil, as producing nations discussed further supply cuts and demand is up.

Economic Update 6-01-2020

• On a shortened holiday week, economic data continued its lackluster trend, now reporting the well-known weakness of April and May in many industries. Included were weaker numbers for durable goods, jobless claims, and pending home sales. Consumer sentiment and housing prices were mixed.
• Global equity markets gained with optimism over lockdowns easing and a slow return to normalized activity. Foreign stocks outperformed U.S., helped by a weaker dollar. Bonds gained upon lower interest rates, and tighter credit spreads. Commodities gained along with hopes for economic recovery, led by higher crude oil prices—which have come a long way in recent weeks.