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Weekly Market Update, April 17, 2023

Report Releases: April 10–April 14, 2023

Consumer Price Index (CPI), March (Wednesday)
Headline consumer prices continued to show signs of slowing growth in March, with a 0.1 percent increase marking the smallest increase since last July. Despite the slowdown in inflationary pressure, inflation remains high on a year-over-year basis.

  • Prior monthly CPI/core CPI growth: +0.4%/+0.5%
  • Expected monthly CPI/core CPI growth: +0.2%/+0.4%
  • Actual monthly CPI/core CPI growth: +0.1%/+0.4%
  • Prior year-over-year CPI/core CPI growth: +6.0%/+5.5%
  • Expected year-over-year CPI/core CPI growth: +5.1%/+5.6%
  • Actual year-over-year CPI/core CPI growth: +5.0%/+5.6%

Producer Price Index (PPI), March (Thursday)
Headline and core producer prices fell in March, caused in part by cheaper energy prices. This marked the largest monthly decline in producer prices since the start of the Covid-19 pandemic.

  • Prior monthly PPI/core PPI growth: +0.0%/+0.2%
  • Expected monthly PPI/core PPI growth: +0.0%/+0.2%
  • Actual monthly PPI/core PPI growth: –0.5%/–0.1%
  • Prior year-over-year PPI/core PPI growth: +4.9%/+4.8%
  • Expected year-over-year PPI/core PPI growth: +3.0%/+3.4%
  • Actual year-over-year PPI/core PPI growth: +2.7%/+3.4%

Retail Sales, March (Friday)
Retail sales fell more than expected in March, partially driven by lower gas prices and auto sales. This marks two consecutive months with slowing sales and indicates consumer spending is starting to cool.

  • Expected/prior month retail sales monthly change: –0.5%/–0.2%
  • Actual retail sales monthly change: –1.0 %
  • Expected/prior month core retail sales monthly change: –0.6%/+0.0%
  • Actual core retail sales monthly change: –0.3%

University of Michigan Consumer Sentiment Survey, April Preliminary (Friday)
Consumer sentiment improved more than expected to start April, which was an encouraging sign that the stress at a handful of U.S. banks in March did not have a meaningful, long-term impact on sentiment.

The Takeaway

  • Falling energy and auto prices drove down inflation and retail sales in March
  • Energy trends bear watching as the price decrease came prior to the impact of the one million barrel per day OPEC+ cut
Equity IndexWeek-to-DateMonth-to-DateYear-to-Date12-Month
S&P 5000.82%0.75%8.31%-4.17%
Nasdaq Composite0.30%-0.78%16.13%-8.37%
DJIA1.20%1.89%2.84%0.49%
MSCI EAFE2.19%2.67%11.36%4.13%
MSCI Emerging Markets1.39%1.11%5.11%-7.86%
Russell 20001.54%-1.15%1.56%-9.81%
Source: Bloomberg

Value stocks continued their outperformance despite cooling inflationary data by way of the CPI and PPI inflation reports. The main factor in value stocks for the week was earnings from big banks such as JP Morgan (JPM), Wells Fargo (WFC), Citigroup (C), and PNC Financial (PNC). The large banks benefitted from inflows of deposits from smaller regional banks and higher margins driven by rising rates. Investors will keep an eye out for regional bank earnings this week, as well as additional clarity regarding balance sheet health as deposit outflows and commercial real estate have raised concerns.

Fixed Income IndexMonth-to-DateYear-to-Date12-Month
U.S. Broad Market0.01%2.97%-2.07%
U.S. Treasury-0.09%2.92%-2.16%
U.S. Mortgages0.00%2.53%-2.35%
Municipal Bond1.03%3.83%2.69%
Source: Bloomberg

The front end of the curve lifted last week as lower inflation led investors to move out longer on the yield curve. The March inflationary data showed that the Federal Reserve (Fed) is making strides in bringing down inflation. A decline in energy prices also helped in March. The 2-year, 5-year, 10-year, and 30-year rose 11 basis points (bps) (to 4.1 percent), 10 bps (to 3.61 percent), 11 bps (to 3.52 percent), and 12 bps (to 3.74 percent), respectively.

The Takeaway

  • Value stocks outperformed as major bank earnings came in strong
  • Shorter maturity fixed income investments sold off as inflation has started to come down

Looking Ahead
There will be a slew of housing data released this week, which will provide not only an indication on future shelter inflation, but also bank mortgage lending activity.

  • The week will kick off on Monday with the National Association of Home Builders Housing Market Report for April. Home builder confidence is set to increase slightly after rising more than expected in March.
  • Tuesday will see the release of the housing starts and building permits reports for March. Housing starts and building permits are both set to drop following larger-than-expected increases in February. The pace of new home construction is expected to remain well below the pandemic-era highs that we saw last spring.
  • Existing home sales for March will be published on Thursday. Sales are set to drop, as high prices, low supply, and high mortgage rates serve as a headwind toward faster sales growth.
  • Finally, Friday will see the release of the S&P Global U.S. Composite PMI, which will provide an indication of economic confidence overall and broken out by manufacturing and services.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2023 Commonwealth Financial Network®

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