Hello, this is Tom Jalics, Chief Market Strategist at Fifth Third Bank
Financial markets continue to be volatile as investors attempt to navigate through a third-straight week of equity market declines. The hawkish U.S. Federal Reserve (Fed), the war in Ukraine, uneven earnings reports, and supply chain risks were just a few highlights that factored into last week’s negative returns. The S&P 500 index finished last week down 2.7%. The Nasdaq Composite fell 3.8% and the Dow Jones Industrial Average dropped 900 points to close its worst day on Friday since 2020, falling 1.8% for the week. The U.S. 10-year Treasury yield continued to rise, up seven basis points to 2.9% to end the week. Oil ended a volatile week down as West Texas Intermediate Crude ended the week at $101.36 per barrel. Gold was down 2.3% for the week ending at $1,933 per ounce.
Last week's headlines focused on the ongoing war in Ukraine and the increasingly hawkish central bank commentary. The Federal Reserve’s Jerome Powell spoke during a panel discussion on Thursday, which also included Christine Lagarde, the ECB president. Powell blessed the thought of a half-point short-term interest rate increase at next month’s meeting. The effort is intended to drive domestic inflation back toward 2.0%, given several year-over-year current inflation readings that are now north of 5.0%. Powell noted that the idea of front-end loading of policy moves could prove to help the Fed achieve their goal in a timely manner. Although he did not give deliberate and concrete comments on the markets pricing in a 50 basis point rate hike, he pointed to March’s minutes which revealed many officials who backed one or more 50 basis point interest rate hikes.
No sign of peace on the Russia/Ukraine war front as Russia continues its siege east, reportedly taking over the city of Mariupol. President Biden agreed to send $1.3 billion in arms and aid to Ukraine. This comes in addition to the $2.4 billion the U.S. has sent. It is expected that President Biden will ask Congress to boost assistance further as Russia pushes forward in the eastern lands of Ukraine.
U.S. economic releases last week were light. Initial applications for unemployment benefits for the week ended April 16 fell to 184,000, 2,000 less than the prior week's revised 186,000. Continuing claims slid to 1.417 million, down from last week's 1.475 million. The labor market continues to show signs of healing and strength. U.S. housing starts in March unexpectedly rose 0.3% month-over-month to an annualized 1.79 million, the highest level since 2006. Expectations were for a decline of 1.6%, down from the revised 6.5% change in February. Good news in a supply constrained housing market. U.S. existing home sales slid to 5.77 million in March, matching estimates but down from 5.93 million in February. The drop in sales fell to the lowest since June of 2020 as limited inventory and rising mortgage rates curbed buying.
In the week ahead, investors will be busy as eyes turn toward a U.S. GDP reading which is expected to show growth of 1% on an annualized basis for the first quarter. Additionally, investors will look for inflation prints from France, Germany, and Italy as prices are expected to remain red-hot. Earnings season is in full swing as corporate announcements fill the upcoming week, following mixed first quarter results from major U.S. banks. European banks are on-deck, along with technology giant Apple and consumer discretionary titan Amazon. Other corporations expected to report earnings include Southwest, 3M, Chipotle, Exxon, and more. Investors will focus on commentary from management on how the war in Ukraine has affected operations and future growth prospects.
As always, we will be watching and reporting to you next week. Thank you.