Economic Market Summary

Market Down and Dirty

Last Week’s Economic/Market Summary

Data

• U.S. equities finished mixed as volatility in the banking sector was offset by positive signs on inflation.
  • S&P 500 +1.45% Dow -0.15%, Russell 2000 -2.81%, Nasdaq +4.41%1
    • The All-Country World Index ended -0.08%.1
  • S&P 500 sub-sectors were mixed last week.
    • Technology & Utilities were the best performers last week.
    • Financials & Energy led to the downside with losses over 6%.1
  • The CBOE Volatility Index (VIX) ended up 2.3% at 25.37, but well off its highs. 1
• US Treasury bond yields collapsed lower last week.
  • US 2yr -0.79% at 3.81%, 10yr -0.31% to 3.39%, 30yr -0.10% to 3.60%.1
  • The volatility in the bond market was the largest since the financial crisis of 2008. 1
• Commodities as an aggregate asset class moved lower last week.
  • WTI Crude sank -13.55% on recession fears. 1
  • Gold rose 6.21%.1
  • The US Dollar index declined -0.68%.1
• In our opinion, U.S. economic data was mixed last week.
  • Inflation data came in up for February but in line with expectations. 1
  • Retail sales came in lower than expected for the latest month. 1
  • US manufacturing & industrial production came in lower than expected. 1
• An index of equities outside the US (FTSE All-World ex-US) declined -1.75%.1

Conclusion

• US Equities finished the week mixed last week despite the banking sector concerns, historical bond volatility, major recession fears, & major Federal Reserve uncertainty.
  • Growth led the charge higher as the Nasdaq soared over 4.41%, led by the mega-cap names. 1
    • This was the Nasdaq’s best week since November1…even with the Fed meeting this week where they’re expected to hike rates for the 9th straight time.
  • Growth gained 4.1% while its Value counterpart lost 1.7%.1
    • This was the biggest performance gap since 2001. 1
    • This is most likely a bet on the Fed slowing its forward tightening path and there not being a sizeable recession.
• Commodities collapsed as global growth concerns ramped up.
• US Treasury yields sank lower, led by the 2yr, as there was a mad dash for safety.
  • Swings across the bond market were partially driven by constantly changing bets on how central banks would respond to the current banking turmoil.
  • The move in the 2yr was the largest weekly move since 1982. 1
• Last week’s major events were all about liquidity.
  • Rattled by runs on regional US banks and wild gyrations in stocks and bonds, bankers abandoned attempts to raise new funding for their corporate clients.
    • Not a single investment-grade company sold bonds in the US market last week, marking the first sign of what’s set to be a broad-based hit to liquidity in the economy.
  • A rush for safety outside of banks saw money-market funds attract the biggest weekly inflow since April 2020. 1
    • We believe with deposits already sliding in the run-up to three bank collapses, the pace of lending to companies and households alike is bound to shrink.
  • Fed data showed $152.85 Billion in bank borrowing from the discount window last week. 1
    • This is the traditional liquidity backstop for banks.
    • This was a record high that exceeded the prior $111B record from 2008. 1
  • The Federal Reserve and five other central banks announced coordinated action on Sunday to boost liquidity in US dollar swap arrangements, the latest effort by policymakers to ease growing strains in the global financial system.
    • The boost to swap lines is an attempt to improve liquidity in the global economy and ease strains in funding markets to mitigate the impact on the supply of loans to households and businesses.
• All eyes are literally on Powell and the Federal Reserve as they are now in an extremely difficult spot.
  • The question is whether the brakes have been suddenly slammed too hard by their rate hikes.
  • The central bank wanted a slowdown — something seen as essential to tame inflation — but not a crisis capable of sinking the economy into a deep recession.
  • Yet, if they pause/cut too soon, they risk loosening financial conditions and inflation ramping back up higher similar to what happened prior to Volcker coming into the Fed in the 80s.
• We continue to rigidly monitor our various data signals and our portfolios are in a great defensive position considering this economic backdrop.

Ryan A. Mumy, CFP®,

AIF® – Chief Investment Officer

Contact: 828/855-9400
info@CIASonline.com or rmumy@bloomberg.net 

 1 Source: Bloomberg – 3/17/2023 

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