With another week in the books, market participants finally got a reprieve from the volatility that has been a staple over the last year and a half. This week’s economic data provided little impetus for a market rally or a steep decline, leaving major indices such as the S&P 500, and the Dow Jones Industrial Average within 20 basis points of where they ended the previous week.
While there were no significant economic releases, one of the more noteworthy data points this week was the continuation of slightly higher weekly jobless claims, which increased to 245k, hovering near their 52-week high. These claims indicate the labor market may finally be starting to cool off. Additionally, continuing claims have reached their highest level in 17 months, further emphasizing that the labor market may be indicating the beginning of a slowdown. This increase in jobless figures raises concerns about a potential recession and could also be a driver for a more dovish Federal Reserve.
Moreover, the Conference Board’s Leading Economic Indicators (LEI) index took a hit this week, dropping -1.2% in March. This decline marks the lowest reading since November 2020 and suggests that the economy may be losing steam. The LEI, a composite of ten economic indicators, is designed to provide an early warning signal for potential economic shifts. A negative reading implies that the economic outlook may be deteriorating, and based on the current level, it indicates a recession at some point over the next 12 months.
But again, despite these data points, the stock market has remained remarkably resilient, with major indices barely budging from their previous week’s levels. This apparent disconnect between the stock market and the economy may be attributed to several factors. For one, investors could anticipate more accommodative monetary policy from central banks in response to the weakening economic data. Or, market participants might be focusing on long-term growth prospects rather than near-term economic headwinds. Either way, as we move through the next few weeks, we’ll continue to get more information through earnings reports, economic data releases, and the Fed meeting the first week of May.
Finally, we will resume our in-depth look into behavioral finance. This week, the focus will be on confirmation bias. Confirmation bias is a prevalent cognitive bias that affects decision-making in various aspects of life, including investment decisions. This psychological phenomenon occurs when individuals seek, interpret, or remember information in a way that confirms their preexisting beliefs or hypotheses. If you are interested in reading more, click here for the entire article.
Economy
- U.S. equity markets were largely unchanged for the week ending April 21, with the S&P 500 down -0.1%, the Nasdaq down -0.4%, and the small-cap Russell 2000 up 0.6%. There was little in the way of economic data, with small releases on weekly unemployment claims and the Conference Board’s LEI.
- As the Conference Board reported, the U.S. Leading Economic Index® (LEI) experienced a -1.2% decrease in March 2023, settling at 108.4 (with 2016 as the base year at 100). This followed a -0.5% drop in February. Between September 2022 and March 2023, the LEI registered a -4.5% decline over six months, a more substantial contraction than the -3.5% decrease observed during the preceding six-month period from March to September 2022.
- The week ending April 15th saw a rise in the number of Americans applying for unemployment benefits, increasing by 5k to 245k and exceeding the market’s anticipated 240k. This outcome aligns with data collection from March, indicating a slight weakening in the U.S. labor market. This break in the trend of a tight labor market occurs despite the Federal Reserve’s assertive rate increases.
- In a surprising turn, the N.Y. Empire State Manufacturing Index rose to 10.8 in April 2023, up from -24.6 in March, surpassing market predictions of -18. This indicates the first growth in manufacturing in New York state in five months and the most robust performance since July of the previous year.
- In April 2023, the Philadelphia Fed Manufacturing Index in the U.S. dropped to -31.3 points, its lowest level since May 2020, down from -23.2 in March. This result marks the eighth consecutive negative reading and falls short of market projections, which anticipated a value of -19.2.
Stocks
- U.S. equities were in negative territory. Communication Services and Energy led the decline, while Consumer Staples and Real Estate outperformed. Value stocks led growth stocks and small caps beat large caps.
- International equities closed higher for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield increased 5 basis points to 3.57% during the week.
- Global bond markets were in negative territory this week.
- Government bonds led for the week, followed by corporate bonds and high yield bonds.
