Market Recap – Monday Morning Market Memo – April 3, 2023

Market Recap – Monday Morning Market Memo – April 3, 2023

Last Friday morning, the Bureau of Economic Analysis reported the PCE (personal-consumption-expenditures) price index increased .3% in February.  Core PCE, the Federal Reserve’s preferred inflation gauge, which excludes food and energy, also rose .3%, and 4.6% on a year-over-year basis.  These numbers were better-than-expected (meaning less inflation) and positive news for the stock market.  The result was a nice Friday rally – with the Dow Jones Industrial Average gaining over 400 points (1.3%), while the Standard & Poor’s 500 Index and NASDAQ Composite added 1.4% and 1.7% respectively.

For the week, the Dow gained 3.2% to 33,274 – the NASDAQ jumped 3.4% to 12,222 – and the S&P advanced 3.5% to 4,109.  Looking at the first quarter of 2023, the Dow nudged about ½ percent higher, the S&P rose 7%, while the NASDAQ led the way with an impressive 17% gain, its best quarterly performance since 2020.

These gains came despite some fundamentally negative issues and headline news: The Federal Reserve has been raising interest rates; earnings estimates are coming down and are at risk for the year; the failure of two regional banks brought the health of the banking system into question; along with growing predictions of a recession for later this year.

One factor supporting and lifting stock prices is the belief that interest rates have already peaked.  Further, market expectations are the Federal Reserve will cut rates later this year.  According to the CME FedWatch Tool, there’s about a 54% chance the Fed raises rates 1/4 point in May, but then the probabilities shift to the likelihood of interest rate cuts, possibly as early as July.  Additionally, many investors are already starting to look ahead to 2024 optimistically, with S&P 500 earnings expected to hit a record high, up nicely from 2022 earnings levels.

Looking to the week ahead, the big number to watch is the Jobs Report for March, due out Friday morning.  Expectations are the economy added about 225,000 jobs last month and for the unemployment rate to come in unchanged at 3.6%, which is near an historic low.  We’ll have to wait until Monday for the stock market’s reaction, however, as equity markets will be closed in observance of Good Friday.

As always, don’t hesitate to contact us with any questions or if you would like to set up a meeting.  We hope you enjoy the upcoming holiday weekend!

All the best – Southport Station Financial Management, LLC