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Weekly Market Update, March 27, 2023

Report Releases: March 20–March 24, 2023

Existing Home Sales, February (Tuesday)
Existing home sales surged 14.5 percent in February, breaking a yearlong streak of declining monthly sales. The rise in sales was supported by declining mortgage rates and modestly lower home prices.

  • Expected/prior month existing home sales monthly change: +5%/–0.7%
  • Actual existing home sales monthly change: +14.5%

FOMC Rate Decision (Wednesday)
The FOMC hiked the federal funds rate 25 basis points (bps), which was in line with investor and economist expectations. Federal Reserve (Fed) Chair Jerome Powell indicated in his post-meeting news conference that the central bank still has confidence in the U.S. banking system despite recent high-profile bank collapses.

Initial Jobless Claims (Thursday)
The weekly initial jobless claims report showed 191,000 claims were submitted. This was down 1,000 claims from the prior week and still below the 200,000 mark, indicating continued tightness
in the labor market.

Durable Goods Orders, February (Thursday)
Headline and core durable goods orders came in below expectations in February, signaling slowing business investment during the month.

  • Expected/prior durable goods orders monthly change: +0.2%/–5%
  • Actual durable goods orders change: –1%
  • Expected/prior core durable goods orders monthly change: +0.2%/+0.4%
  • Actual core durable goods orders change: 0%

The Takeaway

  • The Fed hiked rates again but expectations have shifted. This is despite the Fed’s call for rates to remain at their current level until inflation can approach its target.
  • Investors speculated that this could be the last hike of the cycle. Meanwhile, Powell said additional “firming” of policy could be warranted.
Equity IndexWeek-to-DateMonth-to-DateYear-to-Date12-Month
S&P 5001.41%0.16%3.86%-11.08%
Nasdaq Composite1.68%3.30%13.22%-15.80%
MSCI EAFE1.59%-1.48%4.28%-3.99%
MSCI Emerging Markets2.23%1.06%1.97%-11.05%
Russell 20000.53%-8.41%-1.18%-15.26%
Source: Bloomberg

Equities rose during a volatile week. Mixed messaging on the banking sector from Powell and Treasury Secretary Janet Yellen resulted in midweek volatility. International stocks fared well as the dollar fell. The European Central Bank raised rates 50 bps on March 16, whereas the Fed chose a 25 bps hike. The dollar index was down 0.6 percent. Mega-cap tech names, such as Apple, Tesla, and Nvidia, rose more than 3 percent. Gold, which increased 0.5 percent, has climbed amid banking concerns.

Fixed Income IndexMonth-to-DateYear-to-Date12-Month
U.S. Broad Market3.01%3.44%-3.37%
U.S. Treasury3.46%3.57%-3.18%
U.S. Mortgages2.85%3.43%-3.09%
Municipal Bond1.96%2.52%-0.04%
Source: Bloomberg

U.S. Treasury curve moves were more muted than in the previous two weeks as the Fed’s policy change stole the spotlight from banking system concerns. The 2-year fell 7 bps to 3.78 percent, the 5-year dropped 6 bps to 3.41 percent, the 10-year dipped 2 bps to 3.38 percent, and the 30-year rose 5 bps to 3.65 percent. The Fed offered few surprises to change the path the yield curve has taken in recent weeks. The back end of the curve rose slightly as investor expectations of longer duration growth increased in the face of a potential pause from the central bank.

The Takeaway

  • Stocks rose slightly as the Fed confirmed a more cautious path forward.
  • Growth stocks and Treasuries continued to be safe havens for investors.

Looking Ahead

This week, we expect to see several data points on the health of the consumer.

  • Tuesday’s reports will contain the Conference Board Consumer Confidence Index for March and retail inventories for February. Economist forecasts call for slightly lower consumer confidence in March, partially due to concerns about the health of the banking system. Retailers will continue to manage through their buildup from the end of 2021.
  • Thursday will see the release of core personal consumption expenditures, the Fed’s preferred inflation gauge.
  • Finally, personal income and personal spending reports for February will be published on Friday. They are expected to show a solid 0.3 percent increase for income and spending in February after better-than-expected spending growth in January.

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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