Thanks to a much lower than expected advance estimate of GDP and a rising probability of recession getting underway later in 2023, investors bid up stocks in anticipation the Fed's next rate hike, scheduled for 3 May 2023, will be the last of the series of hikes that began in March 2022.
The S&P 500 (Index: SPX) ended the week at 4169.48, rising 0.9% over its previous week's close. In between, stock prices had dived as low as 4,055.99 on Wednesday, 26 April 2023. Contemporary news reports attributed that decline to the combination of weak earnings coming on top of what was expected to be modestly strong economic growth to be reported later in the week, the combination of which would boost the likelihood the Fed would sustain the Federal Funds Rate at its expected peak level for an extended period before reversing course and cutting rates.
What changed that expectation was the worse-than-expected GDP estimate released on Thursday, 27 April 2023, which effectively moves up the expected timetable for rate cuts. That momentum carried through Friday, 28 April 2023, with the S&P 500 rising 2.8% from Wednesday's closing low for the week.
The alternative futures chart shows all that stock price action, but more importantly, shows it puts the level of the S&P 500's trajectory right in the middle of the indicated redzone forecast range.
We've already recapped the week's biggest market-moving headlines, but there was more going on during the week that was. Here's our summary of the major headlines we tracked during the week.
- Monday, 24 April 2023
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- Signs and portents for the U.S. economy:
- Bigger stimulus developing in China
- Positive growth signs in Eurozone:
- BOJ minions' new boss says wants much stronger inflation before considering changes to never-ending stimulus:
- BOJ chief wants 'quite strong' inflation before tweaking yield control policy
- BOJ may conduct long-term review of monetary easing - sources
- ECB minions thinking they'd rather focus on climate change than inflation:
- Climate change fight a 'core duty' for central banks - ECB's Villeroy
- Analysis-Germany's 'very generous' pay deal may complicate ECB's inflation fight
- ECB has travelled most of the way towards higher interest rates - Villeroy
- Nasdaq underperforms on worries about tech earnings ahead
- Tuesday, 25 April 2023
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- Signs and portents for the U.S. economy:
- US new home sales soar to one-year high in March
- US consumer confidence falls to 9-month low in April
- Oil dips 2% on economic woes and stronger dollar
- BOJ minions excited to keep never-ending stimulus alive, despite inflation:
- BOJ's Ueda vows to keep rates low for now, signals chance of future hike
- Japan's business services inflation hits 8-year high in fiscal 2022
- ECB minions say inflation of Eurozone food prices will slow later in 2023, getting excited about hiking rates again:
- ECB's Villeroy: Food price inflation to start easing in H2
- ECB set to step down to 25 bps move on May 4, at least one more expected- Reuters Poll
- ECB will have to raise rates again on May 4, Lane tells Le Monde
- Wall St ends lower as weak earnings fan fears of economic slowdown
- Wednesday, 26 April 2023
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- Signs and portents for the U.S. economy:
- Companies' cost inflation is slowing but shoppers may wait for lower prices
- US business spending on equipment weakening as demand for goods slows
- Oil drops nearly 4% as recession fears outweigh US inventory draw
- Bigger trouble, stimulus developing in China:
- BOJ minions' new boss thinking about tweaking, keeping never-ending stimulus alive:
- New BOJ chief's first task may be to tweak forward guidance
- Japan's ex-top FX diplomat sees BOJ keeping ultra-low rates this year
- Nasdaq outperforms as investors cheer Microsoft, Dow transports sink
- Thursday, 27 April 2023
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- Signs and portents for the U.S. economy:
- US economic growth slows in first quarter; weekly jobless claims fall
- Oil prices stabilise after hefty losses
- US pending home sales slump unexpectedly in March
- Fed minions trying to learn something from bank failures:
- Speed of US bank failures to play starring role in Fed, FDIC post-mortems
- Factbox-Fed, FDIC reviews of US bank failures to spotlight problems, fixes
- Bigger trouble, stimulus developing in China:
- China's job market tough, especially for college graduates, vice minister says
- China Jan-Mar industrial profit slump underlines patchy economic recovery
- China regulator to help lower financing costs of small businesses
- BOJ minions see more inflation, vow to keep never-ending stimulus alive for at least another 18 months:
- Consumer inflation in Japan's capital accelerates, keeps BOJ under pressure
- BOJ keeps ultra-low rates, decides to conduct policy review
- BOJ Governor Ueda's comments at news conference
- ECB minions thinking about changing rules for banks, encouraged to keep hike rates:
- ECB's Villeroy and Knot put bank rule changes on the table
- ECB should keep raising rates until mid-2024, EU must tighten fiscal policy -IMF
- Wall Street notches biggest gain in months, Treasury yields rise on solid earnings
- Friday, 28 April 2023
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- Signs and portents for the U.S. economy:
- US labor costs increase solidly in first quarter
- Crude prices up over 2% on rising U.S. oil demand and lower output
- US consumer spending plateaus; core inflation remains strong
- Fed minions get wage inflation to worry about, on top of fixing bank system oversight:
- High labor costs fuel debate at Fed about what it means for inflation
- Fed plans broad revamp of bank oversight in wake of SVB collapse |
- US regulators vow tougher oversight after SVB, Signature supervision failures
- Bigger trouble, stimulus developing in China:
- China's factory activity likely grew at slower pace in April- Reuters poll
- China to keep up policy support for economy, focus on demand
- Bigger trouble hits in Taiwan:
- Eurozone registers positive, near-zero growth:
- Euro zone grows marginally at start of 2023 after stagnation
- German economy skirts recession, but just for now
- German unemployment rises more than expected in April
- Wall St ends higher, posts weekly, monthly gains on solid earnings, Fed pause hopes
The CME Group's FedWatch Tool anticipates the Fed will hike the Federal Funds Rate by a quarter point to a target range of 5.00-5.25% at its upcoming meeting on 3 May (2023-Q2). After that, the FedWatch tool anticipates a series of quarter point rate cuts starting from 20 September (2023-Q3) and continuing at six-to-twelve-week intervals through the CME FedWatch tool's available forecast period, which extends through 25 September 2024 (2024-Q3).
The BEA's initial estimate for real GDP growth in 2023-Q1 is +1.1%, which was substantially below the Atlanta Fed's GDPNow tool's projection of +2.5% for real GDP growth that we recorded last week. It was however closer, yet still below, the so-called Blue Chip consensus of +1.5%. The GDPNow tool has swung around to start looking forward again. As of 28 April 2023, it anticipates +1.7% real GDP growth for the currently playing out quarter of 2023-Q2.