Last week, bank earnings came into light and unemployment data showed a relatively resilient workplace in the lead up to the highly anticipated FOMC meeting. As we continue to await confirmation (hopefully) of a final 0.25% rate hike, the S&P 500 was up 0.55, the Dow Jones rose 2.41%, and the NASDAQ fell -0.53%. Bonds saw a bit of a sell-off on FOMC policy views, with the Agg down -0.50%. Alternatives continued to be mixed, with Bitcoin futures down -6.77%, gold up 0.36%, silver up 0.05%, and oil down -1.61%.
Earnings season was in full swing last week, with many banks reporting for Q2 and revealing that interest rates are leaving the banking sector competitive, broadly with large banks as winners and regional banks as losers. Both have been forced to compete for customer dollars against money market funds. This has caused a margin squeeze on depository accounts, with larger banks being buoyed by their multiple revenue streams. Notably, Goldman Sachs disappointed, coming in 3% under expectations and bringing another half-billion dollars of losses on its consumer segment. The bank’s struggling endeavor into consumer banking with its Marcus online bank and partnership with Apple on the Apple Card have shown the difficulty of expanding a Wall Street powerhouse to main street.
In the lead up to Fed week, we saw a broad array of economic data release and an emphasized look at unemployment numbers. Initial jobless claims (SA) came in this week on a down tick dropping to 228.0k from 237.0k last week. Continuing Jobless claims (SA) had a slight uptick to 1,754k, but have stayed below their April peak of 1861k. This continued resilience in employment coming on dis-inflationary inflation prints have left markets pricing in one final 0.25% rate hike this week. We also saw housing data, with existing home sales (SAAR) ticking down to 4,160k and housing starts (SAAR) dipping to 1,434K. Finally, Retail sales data show that a cooling narrative continues with retail sales (SA, M/M) falling to 0.20% from 0.50%. A lower, but positive, number is likely to confirm the narrative of a resilient consumer amid cooling inflation.
In the week ahead, the Fed meeting is the main event. Although markets have a strong view on the likelihood of a 0.25% rate hike, all eyes will be looking towards forward guidance and where policy goes from here. With the additional data point of restarting student loan payments and their likely drag on consumer budgets, markets are interested in seeing how that will impact rate policy going forward. We will be watching to see if the Fed takes a high-for-longer approach to rates than at the previous meeting and language on the possibility of any future policy hikes. Additionally, with banks having passed Fed stress tests and a relatively uneventful set of bank earnings considering the mini-crisis earlier this year, we will be alerted to see if banking stability language is maintained by the Fed decision.
In geopolitical events, Spain held general elections on Sunday, where expectations as set to see the ‘forgotten regions’, traditionally neglected inland provinces, decide the outcome of the election. Following the success of Teruel Existe, a hyper-regional political party advocating for Teruel interests over ideology in 2019, other regions have followed suit and shifted the Spanish political climate. Lastly, this week saw FedNow, an instant payment service that allows banks to send and receive payments for customers instantly and free, launch with 35 initial institutions with the intention to onboard the entire banking sector.
As we wait for Fed policy, this week will also be filled with Q2 earnings releases for us to watch. This informational barrage could shape the trajectory of the markets for the rest of the year. But, it may not; only time will tell. Weeks like this are great for reminding us that good news (or bad news) cannot be what influences our long-term decisions. “They will have no fear of bad news; their hearts are steadfast, trusting in the Lord” (Psalm 112:7).
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