Last week saw continued earnings releases and the failure of First Republic Bank, which puts all eyes on the FOMC meeting Wednesday. As markets expect a 0.25% rate hike from the Fed, the impact of this last bank failure has markets concerned about further pressure on bank balance sheets. Stock indices rose last week, with the S&P 500 up 0.87%, the Dow Jones up 0.86%, and the NASDAQ up 1.28%. Bonds rallied, in general, with the Bloomberg Agg ending up 0.80%. Alternatives continued to be mixed with Bitcoin futures up 6.84%, gold up 0.43%, and silver up 0.67%, while oil fell 1.40% on bearish economic sentiment.
Last Tuesday, we saw consumer confidence underperform expectations printing at 101.3 vs estimates of 104.2, while new home sales strongly beat expectations at 680.0k vs estimates of 635.0k. Wednesday followed with Durable Orders SA M/M (seasonally adjusted, month-over-month) beating expectations 3.2% vs 2.3%. First Quarter GDP (SAAR quarter-over-quarter) came in sharply under expectations at 1.1% vs 1.8% and raised bearish sentiment over economic slowdown amid higher interest rates. Contrary to these bearish datapoints, Chicago PMI, which tracks manufacturing in the Chicago area, printed at 48.6 and surpassed the 43.4 expectation.
First Republic Bank (FRC) was put into FDIC receivership by California regulators on Friday following earnings showing a $100 Billion outflow of deposits. The goal was to have a deal for Monday morning to prevent financial markets from being impacted. JP Morgan emerged as the winner, buying practically all of FRC for $10.6 billion. The deal is expected to cost the FDIC insurance fund $13 Billion in losses, but every depositor dollar will be protected by the deal.
All eyes this week are on the Federal Reserve with the FOMC meeting scheduled for Wednesday. A 0.25% rate hike is widely expected, with market sentiment favoring this as possibly the final rate hike this cycle. The narrative is expected to shift to focus on when interest rates may be cut as inflation unwinds or economic conditions weaken. The trifecta of data driving the Fed’s decision is expected to be employment, inflation, and banking stability.
In geopolitical events, unrest continues in Sudan, as opposing factions battle for control of the government. The war in Ukraine continues, with Russia conducting pre-dawn missile strikes, and Ukraine readying a spring offensive. In the United States, the Writers Guild of America went on strike after failing to reach a deal with the Alliance of Motion Picture and Television Producers. The largest issue is decreased compensation due, in large part, to content shifting to streaming. The last WGA strike in 2007 is estimated to have had an economic impact of $2.1 billion.
After a week ending with a bank failure and a big Fed decision on the horizon, markets a looking for a trail to be blazed. The Fed’s move on Wednesday could light a path to significant market recovery heading into the second half of the year. Our team is watching the ground closely, so we are prepared to move, accordingly. Proverbs 4:26 reminds us to “watch the path of your feet and all your ways will be established.” As always, we continue to reflect on the need for guidance from Him in our lives and our decisions.
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