The global equity markets finished the quarter with solid advances with few economic data releases. Value stocks edged out growth with small-cap outperforming large-cap. Oil moved back to more than $70 per barrel of crude oil, increasing by 9.2% throughout the week, supporting value indexes. For the quarter, tech-ladened NASDAQ was the best performing, posting a 16.77% gain with the concentrated DOW Jones, the weakest, squeaking into positive territory. The Biden administration proposed new banking regulations, tightening capital and liquidity requirements for banks with assets between $100 and $250 billion USD. In addition, the banks would have to pass more frequent stress tests under a broader range of scenarios. The proposed changes are expected to bring oversight more in-line with the largest bank, and we believe they helped the banking sector recover some of the previous week’s losses and outpace the broader market.
On Tuesday, the S&P CoreLogic Case-Shiller 20-city house price index fell 0.4% in January. In January, all 20 city areas experienced declining annual gains. Year-over-year prices are still higher by 2.5% with Miami, Tampa and Atlanta gaining 13.8%, 10.5% and 8.4%, respectively. While San Francisco and Seattle continue to post annual declines of 7.6% and 5.1%, respectively.1 Also, on Tuesday, the Conference Board Consumer Confidence Index increased modestly in March to 104.2 compared to 103.4 in February. “The Present Situation Index – based on consumers’ assessment of current business and labor market conditions—decreased to 151.1 (1985=100) from 153.0 last month. Based on consumers’ short-term outlook for income, business and labor market conditions, the Expectations Index was 73.0 (1985=100) from 70.4 in February (a slight upward revision). However, for 12 of the last 13 months—since February 2022—the Expectations Index has been below 80, which often signals a recession within the next year.”2
On Wednesday, the National Association of Realtors reported that pending home sales of existing homes increased for the third consecutive month – up 0.8% from January. Contract signings were up in three regions with the West declining 2.4% in February. Year-over-year pending sales are down 17% in the Northeast, 16.5% in the Midwest, 21.7% in the South and 28.4% in the West. The recent increase in pending sales can be attributed to a slight improvement in mortgage rates.3 On Thursday, the US government reported initial unemployment claims rose 7,000 to 198,000 from the previous week, and continuing claims for all benefit programs, ending March 11, decreased by 32,255 to 1,906,497.4
On Friday, the U.S. PCE for the total cost of goods and services rose by 0.3% in February after increasing by 0.6% in January. The year-to-date reading declined to 5% compared to 5.3% in January. The core PCE rate, excluding the more volatile food and energy, also rose by 0.3% in February, bringing the annual rate to 4.6%. While the core is still well above the Federal Reserve’s target rate of 2%, Fed officials have signaled the possibility of one more rate increase before pausing to determine the impact of past rate increases. It usually takes 12 to 18 months before policy rate adjustments impact the economy. February personal income increased by 0.3%, and in a sign that higher rates affect personal consumption, spending rose by 0.2% for the month. This is down from January by 0.3% and 1.8%, respectively.5
In a sign that consumers are worried about a potential recession, the University of Michigan’s latest March Consumer Sentiment recorded a 62.0 reading, dropping 5.0 from February. The Index for Economic Conditions fell by 4.4 to 66.3 from January’s 70.7. The Index of Consumer Expectations fell by 5.5 to 59.9 compared to February’s 64.7. Long-run inflation expectations came in at 2.9%, continuing to stay between 2.9% and 3.1% for the last four months, and the short-term inflation fell to 3.6% from 4.1%, the lowest reading since April 2021.6
After a rocky first quarter, it is easy to assume that the worst could be in the rear-view mirror and that we are nearing the end of the tunnel. However, while the economy holds, there may be surprises to navigate in the coming weeks and months that could shake our resolve to maintain our course.
Sources:
2 https://www.conference-board.org/topics/consumer-confidence
3 https://www.nar.realtor/newsroom/pending-home-sales-grew-for-third-straight-month-up-0-8-in-february
4 https://www.dol.gov/ui/data.pdf
5 https://www.bea.gov/news/2023/personal-income-and-outlays-february-2023
6 http://www.sca.isr.umich.edu/
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Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
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