The Dow (-0.2%), NASDAQ (-0.4%) and S&P 500 (-0.1%) were all slightly lower for the week. Taxable bonds were down about 0.3%, while tax-free municipal bonds lost about 1.4% for the week. Just when we observed that muni bonds extending their winning streak, they got whacked by 1% in just one day last week for no apparent reason, but we will continue our research into why.
Numerous economic reports came in last week that showed continued weakening of the economy. Housing starts, existing home sales, and new building permits are demonstrating the real estate market is slowing. Leading Economic Indicators (LEIs) for March were reported by the Conference Board and showed that LEIs fell further. Seven of the 10 measurements were negative, with none being positive for the first time in this economic cycle. According to a Senior Manager at the Conference Board, “The U.S. LEI fell to its lowest level since November 2020, consistent with worsening economic conditions ahead … The Conference Board forecasts that economic weakness will intensify and spread more widely throughout the US economy over the coming months, leading to a recession starting in mid-2023”. As noted in prior communications, LEIs have been a pretty reliable predictor of a forthcoming recession. However, the labor markets are slowing very slightly, but remain very strong. Despite the weakening LEIs and other economic indicators, inflation remains high and the job market continues to be resilient, so there is now an 85% chance that the Fed will raise interest rates another 0.25% at its meeting next week.
We are now into the heart of corporate earnings season with four of the giant tech companies (AMZN, FB, GOOG, and MSFT) reporting earnings this week. These earnings, and more so their guidance for future earnings can have a big impact on the markets this week, as they represent a substantial component of the NASDAQ and S&P 500 indices. Lastly, the Fed-favored inflation measure, Personal Consumption Expenditures (PCE) will be reported on Friday and may be the final straw driving the Fed’s decision for raising rates next week, or leaving them the same.
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The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.