Weekly market commentary

April 20, 2023

 
 

Inflation recedes a bit more than expected

The latest inflation numbers are in — and they’re better than expected. The consumer price index (CPI) report was released last week, revealing prices went up 5% year over year in March. It’s the slowest pace since May 2021, and the news bumped up the major indexes after the report’s release Wednesday morning.

The party was short-lived, however. Markets came back down to earth a few hours later, following comments from Federal Reserve Bank of Richmond President Thomas Barkin, who said “there is still more to do” to calm inflation.

Thursday brought further encouraging inflation news, with the producer price index (PPI) declining by 0.5% in March. It’s the first decrease since the height of the pandemic shutdowns in April 2020. Producer prices were up 2.7% year over year in March.

Does this mean the Fed will definitely pause interest rate hikes at its May meeting? It’s possible, but with inflation at 5% and employment holding strong, the door is still open for the Fed to consider another increase.

In related news, the International Monetary Fund (IMF) said U.S. economic growth will slow this year, prompted by tighter bank lending following bank failures in early 2023. The IMF said banks’ lending capacity will decline by at least 1%, due to the fall in bank stocks’ value. The lending reduction could impact U.S. gross domestic product (GDP), which the IMF still expects to expand by 1.6% this year.

Earnings season is upon us

Last Friday was the unofficial start of quarterly earnings season. JPMorgan Chase, Wells Fargo, and Citigroup kicked things off, with all three exceeding consensus estimates despite banking industry turmoil and troubles in the first quarter. Analysts are forecasting an earnings drop of 6.5% for S&P 500 companies.

this week

  • It’s a light week as far as data goes. We’ll hear from more Fed officials, who will hopefully give us additional insight into the Fed’s possible actions at its May meeting.

  • How’s the housing market doing? We’ll get several pieces of data from that industry this week, including home builder confidence (Monday), housing starts and building permits (Tuesday) and existing home sales (Thursday).