Week of May 8, 2023

Even with Friday’s rally the US equity markets were unable to end the week positive.  The Dow Jones Industrial Average was down 1.2% and the S&P 500 down 0.8%. The Nasdaq was flat for the week at 0.1%.

The week started with continued unrest in the banking sector.  Despite Monday’s announcement of JP Morgan Chase’s takeover of First Republic, small and large bank stocks saw a pull back on Tuesday.  AXS Investments CEO, Greg Bassuk, commented “We think that the concerns around the bank sector, combined with uneasiness regarding the debt ceiling and most importantly, apprehension over the uncertain future Fed rate policy stance, are all contributing to this risk off sentiment.  So in an area like the bank sector that already was under stress, we’re also seeing greater unease because of these other contributing factors.”

The Federal Reserve met Tuesday and Wednesday of last week and agreed to raise interest rates by 0.25%.  Although this increase was widely expected, investors did not react favorably to the comments by Federal Reserve Chairman Jerome Powell.  Powell conveyed that a decision to pause on future rate hikes was not made in the meeting however he stated, “there’s a sense that we’re…much closer to the end of this than the beginning.”  Powell went on to say “inflation is going to come down not so quickly.  It will take some time.  And in that world, if that forecast is broadly right, it would not be appropriate to cut rates” when asked about the possibility of the Fed cutting interest rates.

Employment data continues to remain strong in the US labor market, with 253,000 jobs being added for the month of April, beating expectations of 185,000.  The unemployment rate was forecasted to increase to 3.6%, however it unexpectedly fell to 3.4%.  Wage growth also beat estimates, rising 4.4% year over year.

This week further data on inflation for April will be released by the Bureau of Labor Statistics. Estimates are for inflation to continue to soften, making a case for the Federal Reserve to pause on rate hikes in June.  In Washington, the debate on how to raise the debt ceiling will continue in an effort to increase the borrowing limit and avoid a US default.