Market Perspective for May 22, 2023

Last week started with some important news as the Empire State Manufacturing Index was released on Monday morning. In April, the index came in at -31.8, which represents a major contraction in New York’s manufacturing sector. This is important as a slump there generally indicates a slowdown in other parts of the country. Although analysts anticipated a negative figure, they foresaw only a modest contraction of 3.7.

On Tuesday, both retail sales and core retail sales figures for the past month were released. In April, retail sales and core retail sales were up .4 percent on a month-over-month basis. This was lower than the forecasted .8 percent increase for retail sales and a .5 percent increase for core retail sales. However, the actual numbers were still higher than a month ago when retail sales figures dropped .7 percent and core retail sales figures dropped .5 percent.

Following a quiet news day on Wednesday, Thursday began with unemployment claim data from the previous week. Over the last seven days, there were a total of 242,000 new claims, which was down from 264,000 the week before and lower than the forecast of 253,000 claims.

When combined with strong retail sales figures, the drop in unemployment claims may indicate that the economy is still hot. This may indicate that the Fed might have to rethink its intent to potentially keep rates where they are at the June Federal Open Market Committee (FOMC) meeting. Several voting members have said that recent data has indicated a need to at least consider another rate hike in June or have expressed a desire to continue hiking rates in general.

On Friday, Fed Chair Jerome Powell gave prepared remarks as to the future of Fed policy. During those remarks, he stated that he was open to the idea of a pause as he felt that interest rates were sufficiently high enough to restrict growth. A temporary pause would give policymakers time to determine whether further hikes were necessary or if existing efforts to reign in the economy were having their intended effect.

Powell also said that issues with Silicon Valley Bank (SVB) and other smaller financial institutions may enable the Fed to keep interest rates where they are. This is because trouble in the banking sector may lead to tougher lending standards, which would create conditions that are less favorable for economic growth.

However, Powell stressed that it was unclear as to whether current trouble in the banking sector would lead to long-term issues. He did say that there were many key differences between the current situation and the one that caused the recession of 2008.

Markets responded strongly to Powell’s remarks as the S&P 500 went from its Friday high of 4212 just before 11 a.m. to its low of 4180 just 30 minutes later. The Dow also reached its Friday high just prior to Powell’s remarks when it hit 33,650. As with the S&P 500, the Dow plunged to its daily low of 33,353 while Powell was talking.

The NASDAQ began Friday at its high of the day of 12,714 before slowing falling to 12,634 by midday. Despite its losses on Friday, the NASDAQ would finish the week up 2.82 percent. The S&P 500 would finish the week about 1.5 percent higher, while the Dow would finish the week up .32 percent.

Other markets such as gold and oil were also impacted by Powell’s comments. Gold was hovering near daily and weekly lows on Friday before finishing the week at $1,983 per ounce. Oil was at a weekly high of $73.48 at 9 a.m. before plummeting throughout the day to finish the week at $71.02.

There will be a number of important news events this week as the FOMC meeting minutes are scheduled to be released on Wednesday. Flash manufacturing and services data is scheduled to be released on Tuesday morning while quarterly gross domestic product (GDP) figures will be announced on Thursday. Finally, Friday sees the release of monthly durable goods and PCE price index figures.

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