Market Commentary

US stocks gained in April as investors worked through mixed economic data. With about half of S&P companies having reported Q1 earnings, 79% of companies reported earnings per share that beat estimates, their best performance relative to analyst expectations since Q4 2021. Economic news was mixed over the month. U.S. employers added 236,000 jobs in March, slightly below the 238,000 estimate and below the upwardly revised 326,000 new hires in February. The unemployment rate fell to 3.5% from 3.6%. The producer-price index increased by 5% annually in March extending the cooling trend. CPI increased 5% annually in March, slightly lower than the 5.1% increase expected. Core CPI, which excludes food and energy, climbed by 5.6% as expected. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 4.2% annually in March, down sharply from a 5.1% increase in February, but higher than the 3.7% estimate. US retail sales dropped by 1% in March, posting a decline for a second straight month. U.S. existing-home sales declined by 2.4% in March, the biggest annual decline in 11 years. US GDP rose at a 1.1% annualized pace in the first quarter, below the 2% estimate and the fourth quarter rate in which GDP climbed 2.6%.

Foreign stocks posted gains in March as global recession fears cooled. The Eurozone headline inflation rate fell to 6.9% in March down significantly from 8.5% in February. Eurozone core inflation, which excludes food and energy, accelerated to 7.5% in March from 7.4% in February. Stubbornly high core inflation has European Central Bank policymakers stating that interest rates will need to keep rising and plan to raise rates again at it’s May meeting. The U.K.’s annual inflation rate rose 10.1% annually in March, above expectations. This follows the unexpected jump to 10.4% in February, which broke three consecutive months of declines. The Bank of England is expected to raise interest rates in May to 4.5%. China’s economy expanded by 4.5% in Q1 compared with a year earlier, above the 4% pace expected by economists. Oil prices increased in April, ending the month at $76.78, up from $75.76 per barrel in March. Emerging markets have trailed developed markets over the month, year to date and the last twelve months.

Interest rates fell in April as investors moved to safety amid the turmoil in the banking industry. The yield on the 10-year Treasury sharply decreased in April ending at 3.45%, down from 3.91% at the start of the month. The Federal Reserve is expected to raise the federal funds rate by 0.25% at its May meeting. Fed officials have signaled they will pay close attention to measures of economic activity, including lending conditions following banking-system stress, when making future rate decisions. The rate for a 30-year fixed-rate mortgage increased to 6.4% at the end of April up from 6.3% to end March. US credit bonds were the top performer for April and the year to date, while corporate bonds were the top performer for the last twelve months. Longer-term bonds outpaced shorter-term bonds for April, the year to date, and the last twelve months.

Market Commentary

US stocks bounced back in March and the first quarter, despite troubles in the banking sector, as the market anticipated the end of the rate tightening cycle may be near. As a result of runs on deposits, Silicon Valley Bank and Signature Bank collapsed in the country’s second and third largest bank failures ever. In response to the two bank’s swift collapse, US regulators rushed to implement emergency measures to stem possible spillovers. Deteriorating confidence in the banking system prompted depositors to move cash from smaller regional banks to larger institutions putting downward pressure on regional banks stocks. Analysts lowered their EPS estimates more than normal during the first quarter based on concerns about bank liquidity and a possible broader economic recession. Economic news was mixed over the month. U.S. employers added 311,000 jobs in February, above the 225,000 estimate. The unemployment rate increased to 3.6%, above expectations. Multiple inflation data points were lower in February. The producer-price index deceased in February by 0.1%, below the estimate for a 0.3% increase. On a 12-month basis, the index increased 4.6%, well below the downwardly revised 5.7% level from the previous month. The consumer price index increased 0.4% in February, putting the annual inflation rate at 6%, both readings were exactly in line with estimates. Core CPI, which excludes food and energy, increased by 5.5% annually in February slightly below the 5.6% increase in January. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 5% annually in February, down from a 5.3% increase in January. US retail sales fell 0.4% in February, more than the 0.3% decline estimated. U.S. existing-home sales jumped 14.5% in February, snapping a 12-month slide and representing the largest monthly percentage increase since July 2020.

Foreign stocks also rebounded in March as actions taken by central banks appear to be cooling inflation in some areas. The Eurozone headline inflation rate continued to fall in February, increasing 8.5% annually, down from 8.6% in January. The European Central Bank (ECB) raised its benchmark interest rate by 0.50% to 3%, despite troubles in the banking sector. The ECB pledged support for the banking sector if needed. UBS took over Credit Suisse, a move prompted by regulators eager to stem a dangerous decline in confidence in the global baking system. The U.K.’s annual inflation rate increased to 10.4% annually in February, up from 10.1% in January. The Bank of England raised it key rate by 0.25% to 4.25% in March. The Chinese government announced a conservative growth target rate of 5% for 2023, recognizing that growth continues to face headwinds. Oil prices declined in March, ending the month at $75.76, down from $77.05 per barrel in February and down from $80.26 to start the year. Emerging markets outpaced developed markets in March, while developed markets outpaced emerging markets over the quarter and the last twelve months.

Interest rates fell in March as the stress in the banking system drove investors to expect the Fed to pause their rate hikes. The yield on the 10-year Treasury sharply decreased in March ending at 3.47%, down from 3.91% at the start of the month and 3.83% at the beginning of the year. The Federal Reserve increased the federal funds rate by 0.25% bringing the rate up to a range of 4.75% to 5.0%. If tighter lending conditions from the issues in the banking system are sustained, Fed Chair Powell acknowledged that could easily have a significant macroeconomic impact which would be factored into the Fed’s policy decisions. The rate for a 30-year fixed-rate mortgage fell to 6.3% at the end of March down from 6.5% to end February. US Government bonds were the top performer for March and the year to date, while municipal bonds were the top performer for the last twelve months. Longer-term bonds outpaced shorter-term bonds for March and the year to date, shorter-term bonds outpaced longer-term bonds over the last twelve months.

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.

Market Commentary

US stocks rallied to start the year with all major indices moving higher in January. The main driver was a shift in focus from a possible recession to a possible pause or pivot in Fed policy. With approximately half of S&P companies reporting Q4 earnings, 70% of companies have reported EPS beating estimates, but many have lower forward guidance. Economic news was mixed over the month. U.S. employers added 223,000 jobs in December, slightly above the 200,000 estimate. The unemployment rate fell to 3.5% in December, matching a 50 year low. Inflation data continued to trend lower in December. The producer-price index increased by 6.2% annually in December, the lowest level since March 2021. CPI increased by 6.5% annually in December, down from 7.1% in November. Core CPI, which excludes food and energy, climbed by 5.7% annually in December below the 6% increase in November. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 5% annually in December, down from a 5.5% increase in November. US retail sales fell 1.1% in December, capping an overall weak holiday shopping season. The U.S. economy grew in the fourth quarter with GDP increasing at a 2.9% annual rate, down slightly from the 3.2% increase in the third quarter. U.S. existing-home sales declined for an 11th straight month falling 1.4% in December, hitting the slowest pace since November 2010.

Foreign stocks also rallied in January as inflation data showed signs of easing. The Eurozone headline inflation rate continued to fall in December, increasing 9.2% annually, down from 10% in November and 10.6% in October. The European Central Bank raised its benchmark interest rate by 0.50% and expect to raise it further based on their inflation outlook. The U.K.’s annual inflation rate fell to 10.5% annually in December down from 10.7% in November. The Bank of England raised it key rate by 0.50% to 3.5% in December, and signaled more tightening would be needed to rein in inflation. Inflation in Japan reached a 41 year high of 4% in December, adding to pressure on the Bank of Japan to unwind its monetary easing. China’s economy expanded 3% in 2022 down sharply from its 8.1% pace in 2021 and one of its slowest rates in decades as repeated Covid lockdowns slowed the economy. Oil prices fell in January, ending the month at $78.87, down from $80.26 per barrel in December. Emerging markets trailed developed markets In January and over the last twelve months.

Interest rates decreased in January as investors anticipate the Fed will slow the pace of rate increases. The yield on the 10-year Treasury fell in January ending at 3.53%, down from 3.83% at the end of December. Fed officials made comments, prior to their February meeting, emphasizing the need to be cautions and to err on the side of overtightening to make sure they get the disinflationary process to take hold in the economy and push inflation back to their 2% target. The Treasury Department began taking special measures to keep paying the government’s debts as the U.S. bumped up against its borrowing limit. The rate for a 30-year fixed-rate mortgage fell to 6.1% at the end of January down from 6.5% to end December. US Credit bonds were the top performer for January, while Municipal bonds were the top performer for the last 12 months. Longer-term bonds outpaced shorter-term bonds for January, while shorter-term bonds outpaced longer-term bonds for the last 12 months.

Market Commentary

US stocks fell in December to end a positive quarter, but disappointing year, as investors focused on a potential recession and how severe it could be. US equity markets experienced their worst year since the financial crisis driven by decades high inflation and aggressive Fed rate hikes throughout the year. Economic news was mixed over the month. The U.S. labor market remained historically tight with employers adding 263,000 jobs in November, well above the 200,000 estimate. The unemployment rate in November was unchanged at 3.7%. Inflation data showed signs of easing with PPI, CPI and PCE all lower than October and well below their recent peaks. The producer-price index increased by 7.4% annually in November, down from 8% in October. CPI increased by 7.1% annually in November, down sharply from 7.7% in October and the 9.1% peak in June. Core CPI, which excludes food and energy, rose by 6% annually in November slightly below the 6.1% estimate. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 5.5% annually in November, matching expectations and down from the 6.1% increase reported for October. US retail sales fell 0.6% in November from the prior month for the biggest decline of the year. U.S. existing-home sales declined for a 10th straight month falling 7.7% in November. It extended a record streak of declines as high mortgage rates and home prices kept many buyers out of the market.

Foreign stocks were relatively flat in December, but ended the fourth quarter significantly higher as inflation remained near record levels and China reopened from Covid restrictions. Foreign stocks outpaced US stocks over December, the fourth quarter, and 2022. Gains were also driven by the US dollar falling by over 7.5% in the fourth quarter. The Eurozone’s headline inflation rate fell in November, for the first time since mid-2021, to 10% from 10.6% in October. The U.K.’s annual inflation rate fell more than expected in November to 10.7% after it hit a 41-year high in October. The European Central Bank, the Bank of England, and the Swiss National Bank all increased their benchmark interest rates by 0.5% to combat the high levels of inflation. The Bank of Japan made a surprise decision to let the yield on the 10-year Japanese government bond rise as high as 0.5% from a previous cap of 0.25%. The Bank of Japan had set a target range near zero since 2016 to keep overall market interest rates low. Oil prices were flat in December, ending the month at $80.26 per barrel, but gained 7% for the year. Emerging markets trailed developed markets over December, the fourth quarter, and 2022.

Interest rates increased in December as investors focused on Fed officials’ comments that they believed they needed to maintain higher rates for longer. The yield on the 10-year Treasury increased in December, ending at 3.83% up from 3.70% at the end of November, but jumping significantly from 1.50% to start the year. At its December meeting the Fed increased the fed funds rate by 0.5% to a range of 4.25%-4.50%, and signaled plans to lift rates in smaller increments through the spring to combat high inflation.  Fed Chair Powell said that slowing rate rises to more traditional quarter-percentage-point increments as soon as the Fed’s next meeting would provide the best way to manage the risk of over-tightening. The rate for a 30-year fixed-rate mortgage was unchanged remaining at 6.5% to end December. Municipal bonds were the top performer for December and the fourth quarter, while US Agency bonds were the top performer for 2022. Shorter-term bonds outpaced longer-term bonds for December and for 2022, while longer-term bonds outpaced shorter-term bonds for the fourth quarter.