The Season of Truth

Last week saw economic and earnings releases that started to shine light on market expectations. Between CPI, Fed Minutes, and earnings, markets had a buffet of information to digest last week. Stock indices rose last week, with the S&P 500 up 0.79%, the Dow Jones up 1.20%, and the NASDAQ up 0.29%. Bonds sold off, in general, with the Bloomberg Agg ending down -1.04%. Alternatives continued to be mixed in the flight to safety, with Bitcoin futures up 8.28%, gold down 0.52%, and silver up 1.46%. Oil rose, with OPEC+ supply policy outweighing recessionary risk.

Economic data this past week saw CPI NSA Y/Y (Not Seasonally Adjusted, year-over-year) come in under expectations and down month over month, at 5.0% versus 6.0% the prior month. Federal Reserve Open Market Committee (FOMC) meeting minutes for March were also released on Wednesday and saw markets reaffirm expectations of a further 25bps rate hike in May (which is expected to be the last rate hike this year). Thursday continued the narrative of slowing inflation, with PPI NSA Y/Y coming in sharply down month over month and under expectations, at 2.7% versus 4.9% the month prior. Lastly, jobless claims came in above expectations for initial claims (239k versus 235k) and continuing claims (1,810k versus 1,777k).

Friday saw earnings season enter full swing, with several large banks reporting. Citigroup beat earnings expectations with EPS $2.19 vs $1.65 estimate, as did JP Morgan with EPS of $4.10 vs $3.41 estimate.  This is in line with the thesis that large banks were the winners versus regional banks, following the Signature Bank and SVB Financial bank runs.

The week ahead is lighter on economic releases. We will see housing starts which are expected to tick downward to 1,420K from 1,450K month prior. Similarly, preliminary building permit numbers are expected to be down, month over month, to 1,460K from 1,524K. These datapoints will help investors see how the push and pull from interest rates are impacting homebuilders, banks, and consumers leading into the summer months. Later in the week, Thursday will see the weekly jobless claims data, and Friday will bring Markit PMI releases for manufacturing and services.

In geopolitical events, Sudan saw the outbreak of armed conflict possibly jeopardizing its path to democracy. The army lead by General Abdel-Fattah Burhan and paramilitary group lead by General Mohammed Hamdan Dagalo engaged in a power struggle between the factions. As the war in Ukraine continues without signs of resolution, Russia’s severe casualties have led to continuing draft needs to maintain their forces. The nation has introduced a new conscription law seeking to stop draft dodging with harsh penalties and a digital draft registry.

After a week punctuated by economic data, earnings season will be the driving factor to watch in the week ahead. As monetary policy outlook solidifies and businesses give guidance for the rest of the year, we focus on incorporating data and understanding market conditions. With the deluge of earnings data ahead, remaining focused on listening for truth and not getting distracted is paramount for investors. 2 Timothy 4:3-4 warns against our human proclivity to ignore Truth, “For the time is coming when people will not endure sound teaching, but having itching ears they will accumulate for themselves teachers to suit their own passions and will turn away from listening to the truth and wander off into myths.”

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