Author: Wendy Huang

Wendy Huang

Financial News and Portfolio Management Discussion through March 25th

Modest gains in major market indices masked sharp volatility amid the uncertainty arising from mixed messages emanating from public officials and revived banking fears. The Dow Jones Industrial Average gained 1.18%, while the Standard & Poor’s 500 added 1.39%. The Nasdaq Composite index rose 1.66% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, advanced by 3.29%.1,2,3

The stock market was unable to find sustained direction as investors weighed comments from Fed Chair Jerome Powell and Treasury Secretary Janet Yellen. Stocks initially rose as banking fears eased following a deal to acquire a troubled Swiss bank. Optimism was further fueled by Yellen, who said the government could intervene to protect depositors if more bank issues materialized.

Enthusiasm faded, however, when Yellen subsequently testified that the Treasury was not working on any blanket insurance for bank deposits and by the Fed’s warning that banking turmoil could shrink lending access — the volatile week ended with sharp intraday price swings, shrugging off revived European banking concerns.

Last week, the Federal Open Market Committee (FOMC) meeting was particularly noteworthy. Fed officials were placed in the difficult position of balancing the banking system’s opposing risks of still-high inflation and stressors. The Committee had considered leaving rates unchanged given banking stressors but unanimously voted to raise rates by 0.25%, citing elevated inflation, resilient economic activity, and a strong labor market.4 The official announcement hinted that the Fed might soon be done with raising rates while also stating it was too early to ascertain the degree to which the economy could slow from the current banking strains.5

1. The Wall Street Journal, March 24, 2023, 2. The Wall Street Journal, March 24, 2023, 3. The Wall Street Journal, March 24, 2023, 4. The Wall Street Journal, March 22, 2023, 5. The Wall Street Journal, March 22, 2023

Financial News and Portfolio Management Discussion through March 18th

Amid the reverberations of two U.S. banks being taken over by regulators and the spread of uncertainty to European banks, stocks trended higher last week on the strength of the technology sector. The Dow Jones Industrial Average was flat (-0.15%), while the Standard & Poor’s 500 rose 1.43%. The Nasdaq Composite index picked up 4.41%. The MSCI EAFE index, which tracks developed overseas stock markets, dropped 3.12%.1,2,3

Stock prices gyrated as investors wrestled with banking troubles that appeared to spread to Europe. Worries of financial instability rocked financials and sent bond yields falling. While the rush into Treasuries was expected, the dash into technology stocks was a surprise. Falling yields made the high-growth names more attractive, though investors targeted their buying in high-quality companies that offered defensive characteristics, such as profits, healthy cash flows, and strong balance sheets.

When Switzerland’s central bank provided a lifeline to a troubled Swiss bank, and a group of U.S. banks provided aid to a struggling regional bank, stocks powered higher on Thursday. Banking jitters, however, returned on Friday, closing out a tumultuous week and paring some of the week’s gains.

Less than two weeks ago, Fed Chair Jerome Powell testified interest rates might have to be hiked higher and faster. Since then, two U.S. banks were placed in receivership, sparking worries of financial instability and changing the market’s outlook on future rate hikes.

The question now is if the Fed will hike short-term rates at all. By Thursday, traders saw an 18.1% probability of no rate increase at the March Fed meeting, which concludes this Wednesday. Just a week ago, it was a 0% chance. Traders also see a 0% chance of a 50 basis point rate increase in March. A week earlier, there was a 68.3% probability. Where the market previously saw little likelihood of a rate cut this year, the probability of a rate cut by July was 63.7% by Thursday.4

1. The Wall Street Journal, March 17, 2023, 2. The Wall Street Journal, March 17, 2023, 3. The Wall Street Journal, March 17, 2023, 4. CME FedWatch Tool, March 16, 2023

Financial News and Portfolio Management Discussion through March 11th

Stocks tumbled last week as investors reconsidered their interest rate expectations after Fed Chair Powell’s Congressional testimony that rates may need to go higher. Stocks also were rattled when a west coast bank was placed into receivership on Friday following a run on deposits. The Dow Jones Industrial Average dropped 4.44%, while the Standard & Poor’s 500 lost 4.55%. The Nasdaq Composite index fell 4.71% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.37%.1,2,3

Congressional testimony on Tuesday by Fed Chair Jerome Powell that interest rates may require a higher increase faster than planned unnerved investors, dimming the hopes of any pause in rate hikes this summer. After stabilizing the following day, stocks trended lower as the financial sector came under pressure. The lower move was triggered by a specialty bank’s liquidity issues, though regional and money center banks could not escape the selling. Labor market strength in a Friday report exacerbated rate-hike anxieties, though cooling wage gains balanced an above-consensus new jobs number. Markets appeared to take the employment report in stride but fell on worries arising from the shutdown of a tech-centric bank.4

Fed Chair Powell last week testified on Capitol Hill during which he acknowledged that the economy was running hotter than he had expected. He said that labor market strength and stubbornly elevated inflation may require the Fed to raise rates quicker than anticipated and above levels previously contemplated. The market did not respond well to Powell’s change of tone. Many now see the potential of a 0.50% rate hike coming out of the Federal Open Market Committee’s (FOMC) March 21-22 meeting instead of the expected increase of 0.25%. Powell did say that the FOMC would consider the monthly employment report released last Friday and upcoming inflation reports before arriving at a decision.

1.The Wall Street Journal, March 10, 2023, 2. The Wall Street Journal, March 10, 2023, 3. The Wall Street Journal, March 10, 2023, 4. The Wall Street Journal, March 10, 2023

February Market Commentary

Market Commentary

US stocks fell in February as new inflation data indicated the Fed may need to raise rates higher and keep them elevated longer than the market anticipated. With almost all S&P companies reporting Q4 earnings, 69% of companies have reported EPS that beat estimates, but many have issued lower forward guidance. Economic news was mixed over the month. U.S. employers added 517,000 jobs in January, well above the 187,000 estimate. The unemployment rate fell to 3.4%, the lowest level in over five decades. Multiple inflation data points were lower in January but appeared to be falling at a slower pace indicating the Fed may need to raise rates higher than the markets expected. The producer-price index increased by 6% annually in January, down from 6.2% in December. CPI increased by 6.4% annually in January, down from 6.5% in December, but higher than expected. Core CPI, which excludes food and energy, climbed by 5.6% annually in January slightly below the 5.7% increase in December. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 5.4% annually in January, up from a 5% increase in December. US retail sales rose 3% in January, topping the 1.9% estimate. U.S. existing-home sales declined for an 12th consecutive month falling 0.7% in January.

Foreign stocks also declined in February as global recession fears reemerged. The Eurozone headline inflation rate continued to fall in January, increasing 8.5% annually, down from 9.2% in December. The European Central Bank raised its benchmark interest rate by 0.50% to 2.5% and signaled it would enact another 0.50% rate increase in March. The U.K.’s annual inflation rate fell to 10.1% annually in January, below economists’ expectations and down from 10.5% in December. The Bank of England raised it key rate by 0.50% to 4% in February and forecasted a much shallower recession than previously feared. Japan’s economy grew 0.2% in the fourth quarter compared to the third quarter and 0.6% on an annualized basis. Manufacturing activity in China rose at the fastest pace in over a decade in February. An early sign the country may be shaking off the impact of the pandemic sooner than expected. Oil prices declined in February, ending the month at $77.05, down from $78.87 per barrel in January. Emerging markets trailed developed markets in February, over the quarter to date, and over the last twelve months.

Interest rates jumped higher in February as bond markets repriced the anticipated path of remaining Fed rate increases. The yield on the 10-year Treasury sharply increased in February ending at 3.91%, up from 3.53% at the start of the month. The Federal Reserve increased the federal funds rate by 0.25% and signaled it was on track to do so again at its March meeting. Minutes from the February meeting showed that most officials thought a slower pace of rate increases provided the best way to manage the risks of raising them too much or too little while some officials said they would have supported raising rates by 0.50% given the strength of economic demand and inflation. The rate for a 30-year fixed-rate mortgage increased to 6.5% at the end of February up from 6.1% to end January. US Agency bonds were the top performer for February, while municipal bonds were the top performer for the year to date and last 12 months. Shorter-term bonds outpaced longer-term bonds for February, the year to date and the last twelve months.

Index PerformanceFebruaryYear to DateTrailing 12  Months
US Stocks (Russell 3000)-2.34%4.39%-8.07%
Foreign Stocks (FTSE AW ex US)-3.50%4.11%-6.72%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-1.80%0.04%-6.22%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-1.73%0.11%-2.06%
Cash (ICE BofA ML 3-Mo T-Bill)0.33%0.64%2.10%


Financial News and Portfolio Management Discussion through March 4th

A late-week surge, triggered by reassuring Fed-speak, propelled stocks higher last week. The Dow Jones Industrial Average gained 1.75%, while the Standard & Poor’s 500 advanced 1.90%. The Nasdaq Composite index picked up 2.58% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, added 0.81%.1,2,3

After rebounding to start the week, stocks weakened following higher inflation numbers out of Europe and higher-than-expected manufacturing activity. Stocks continued their decline into early Thursday following a report of higher labor costs and low initial jobless claims. But stocks staged an afternoon relief rally on Thursday following comments by Atlanta Fed President Raphael Bostic that he was “still very firmly” supportive of increasing rates in quarter-point increments. The climb in stocks was remarkable, given that yields on 10-year Treasuries reached their highest level since November. Undeterred by a strong services data report, the upside momentum continued into the final trading day and added to the week’s gains.4

It was a relatively quiet week for economic news, but several new economic data reports gave insights into overall activity. U.S. manufacturing activity contracted in February–the fourth consecutive month it has done so. While this may eventually justify a reason for moderating future rate hikes, the activity exceeded analysts’ expectations. An accompanying survey of manufacturers pointed to improving demand and potentially accelerating price pressures.

Meanwhile, China reported an outsized jump in manufacturing activity, which may help relieve remaining supply chain kinks. But the report may also fuel commodity price increases and influence global inflation. Inflation remained a persistent issue in Europe, as February’s Eurozone inflation read was hotter than anticipated.

1. The Wall Street Journal, March 3, 2023, 2. The Wall Street Journal, March 3, 2023, 3. The Wall Street Journal, March 3, 2023, 4. The Wall Street Journal, March 2, 2023

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