Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
Last week, U.S. equities fell as investors took profits from stocks that have enjoyed exceptional gains since the lows established back in late October. Technology stocks were hit particularly hard, with the Nasdaq 100 down 1.5 percent for the week. The S&P 500 and the Dow both fared slightly better, falling less than a percent. The yield on the U.S. 10-year Treasury was essentially unchanged, finishing the week at 4.08 percent. This is down from 4.3 percent in mid-February, and down from 5 percent in late October. WTI crude fell 1.3 percent, while both gold and Bitcoin hit all-time highs.
The February jobs report showed the U.S. economy continues to add jobs without causing a surge in wages. The report increased investor optimism that the Federal Reserve will be able to avoid a recession while easing policy, likely later this year. Nonfarm payrolls advanced 275K in February, following a combined 167K downward revision to the prior two months. Also, the U.S. unemployment rate climbed to a two-year high, to 3.9 percent. To many investors, the report confirms that the U.S. labor market is on strong footing, but isn’t overheating, strengthening the argument for Fed rate cuts.
Others argue that historically low unemployment, strong hiring, a growing economy, and stimulative fiscal policy for the foreseeable future, all give the Fed cover to keep interest rates higher for longer. Futures markets are predicting the first rate cut from the Fed during their June meeting, on the way to a total of three quarter-point cuts in 2024. Back in January, markets were expecting 6 rate cuts this year, starting in March.
On the political front, the Senate voted Friday to prevent a partial government shutdown by approving legislation to fund roughly 30 percent of the federal government for the next six months. Also, last Thursday, during his State of Union address, President Biden vowed to raise taxes on wealthy Americans and large companies.
We have a crowded economic calendar this week. On Tuesday we get the Consumer Price Index, or CPI, a popular gauge of inflation. On Thursday we get the Producer’s Price Index, another inflation metric. Investors hope these reports will provide further clarity on whether inflation has eased enough for Fed policymakers to lower borrowing costs in the coming months. Also on Thursday, we get Retail Sales. Then we finish with Industrial Production, Capacity Utilization and Consumer Sentiment on Friday.
As always, we will be watching and reporting back to you next week. Thank you.
