Market Recap 4/28/2023


It was a flat-ish week for the markets as investors weighed a number of competing issues.  Corporate earnings, the growth and inflation data, and continued woes at First Republic all vied for attention.   Some of the big tech heavyweights notched solid gains on earnings, but for the month the NASDAQ was flat.  It’s a bit like the summer lull has arrived early, but the Fed meeting next week also put traders on hold.  Somewhat surprisingly, the ending demise of First Republic did little to unnerve investors.  First Republic lost -74% this week, but the broad banking indexes were down less than -1%.    

There were a couple broad themes to the economic releases.  The first concerned economic growth in the first quarter.  Real GDP rose +1.1% at an annualized rate, eight tenths below consensus expectations.  



If you dig into the details, growth was actually decent.  Key points:

  • Inventories provided a -2.3% drag on growth as businesses ran down stocks.


  • However, consumer spending accelerated from the 4th quarter, jumping a solid +3.7%.

  • Residential investment (home and apartment construction) was weak as expected.

  • Finally, government spending is adding significantly to growth.  As you can see below, the fiscal side grew by +7.8% in the first quarter.  This is worth noting given the on-going debate about the debt ceiling and possible spending cuts.

 image red line

The other major reports were inflation related.   The personal consumption expenditures index (PCE) rose +0.3% in March and was up +4.2% year-over-year.   Headline inflation is in a pronounced downtrend, as you can see below.

Chart, line chart

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That’s the good news.   The bad news is that if you strip out food and energy, the core PCE looks pretty sticky in the mid-4% range.   This is well above the Fed’s 2% target.



So, something for everyone of course.  

Wage growth is also proving sticky.  Employment costs increased +1.2% in the first quarter, up from +1% in the fourth quarter last year.  On a year-over-year basis wages were up +4.8%.

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By the end of the week the market is pricing in near certainty of a 25bps hike in the Fed Funds rate next Wednesday.   This will come despite the banking problems at San Francisco based Frist Republic.  Money market yields will once again ratchet higher, putting more pressure on bank deposits to leave for greener pastures.  

(Other) Charts We Found Interesting

1.  Speaking of banks, First Republic is likely to disappear as an independent entity this weekend.  Why?  Rapid deposit outflows and a balance sheet that is underwater at current market prices.  The good news – no other bank is similar serious trouble.  

image red circle 


2.  We are firmly up against the debt ceiling – the Treasury has maybe another couple of months before they have to start curtailing spending if no solution is hammered out.




 3.  The markets are largely taking it all in their stride, at least so far.   One of the few signs of stress is in the market to insure against U.S. default – prices have shot higher.  But this is a very thin market without much liquidity.  


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4.  Part of any possible debt ceiling solution may entail spending cuts.  While the House bill is DOA, the question of what to cut is as thorny as always.  There’s a lot of non-discretionary spending in today’s Federal budget.


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5. You think rate hikes in the U.S. have been bad?   Argentina’s central bank hiked rates by 10 percentage points on Thursday to 91%.  As you can see below, Argentina has a bit of an inflation problem.

Argentina hikes interest rate 300 basis points after inflation breaks 100%  barrier | Reuters


6. First Republic’s demise won’t help downtown San Francisco.  Cell phone activity in downtown is just 31% of pre-COVID levels.  




7.  Along similar lines, 350 California Street is taking offers.  This is the former headquarters of Union Bank.  In 2019 it was valued at $300 million.  Brokers think it might go for $60 million.  As you can see below, vacancy rates are a problem.   




8. This month India overtook China as the most populated country.    


9.  This was Microsoft’s first headquarters in Albuquerque.  Revenue in year one was $16,000. Today, it’s almost that every two seconds!!!

Have a good weekend.


Charles Blankley  

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