Conditions in the banking sector continue to be front and center for the financial markets. Market anxiety seems to have lessened a bit last week after Swiss regulators worked out a deal for UBS to buy/rescue its troubled competitor Credit Suisse Group, and nothing new popped up on the radar large enough to rattle markets further. Reflecting the calming of some fears, the SPDR S&P Regional Banking ETF (KRE), was up .2 percent last week.
Investors also digested the latest interest rate hike by the Federal Reserve last week. The Fed raised rates by ¼ point to a target range of 4.75 to 5 percent and indicated that “some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.” In other words, they may hike interest rates again at next month’s meeting. Further, while acknowledging recent developments with banks are likely to result in tighter credit conditions, Chair Powell stated interest rate “cuts are not in our base case” for 2023. The market, however, is making its own prediction on the future path of interest rates.
Investors are betting the Federal Reserve is at or near the end of their tightening cycle, and that they will cut rates this year. Current probabilities are nearly 60% the Fed will leave rates unchanged at their next policy meeting (May 3rd), with a 53% likelihood they will cut interest rates at the July meeting – according to the CME FedWatch Tool. When the trading was all said and done last week, the major stock market averages ended with decent gains….
The Dow Jones Industrial Average rose 1.2% to 32,238 – the NASDAQ Composite gained 1.7% to 11,824, booking its second consecutive weekly gain on strength in technology stocks – while the Standard & Poor’s 500 Index added 1.4% to 3,971. Part of the reason behind these gains is the fact investors are anticipating and looking forward to rate cuts later in the year.
Looking to the week ahead, in addition to watching developments in the banking sector, we’ll get data from the U.S. Bureau of Economic Analysis on personal income and personal spending for February. Additionally, we’ll get the final read on Gross Domestic Product for the last quarter of 2022, which is expected to show growth of 2.7%, unchanged from the prior estimate.
Please don’t hesitate to contact us with any questions or if you would like to set up a meeting.
All the best – Southport Station Financial Management, LLC