Hello, this is Claire Ellerhorst, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices ended mostly higher last week, clawing back at early quarter losses. The S&P 500 Index rose for a second straight week, ending up 1.8% in total return. The tech-heavy Nasdaq Composite rose 2%, while the blue-chip Dow Jones Industrial Average was up a more modest 0.3% for the week. The U.S. 10-year Treasury yield surged 32 basis points to end the week at 2.47%, while the 2-year Treasury yield rose 33 basis points to end the week at 2.27%. The yield curve, or the spread between the 10-year and 2-year yields, flattened modestly to now just 20 basis points. Oil surged, with West Texas Intermediate crude up more than 10% for the week, now up more than 50% year-to-date. The U.S. dollar strengthened against major peers and gold rose.
Market participants remained focused on the Federal Reserve’s hawkish policy shift, with Fed officials continuing to emphasize plans for an aggressive tightening path ahead. The sharp move higher in bond yields was largely driven by markets digesting this news. Fed Chair Jerome Powell said the central bank must move quickly to bring monetary policy back to neutral amid surging inflation and a strong labor market. Fed watchers are now anticipating a more frontloaded tightening cycle, perhaps with a hike of 50 basis points to the Fed funds rate at the next meeting in May, twice the magnitude at which the Fed typically moves.
The U.S. economic calendar was relatively light but included a few notable releases. New home sales unexpectedly declined in February for a second month. Sales fell 2.0% from a downwardly revised pace in January, suggesting buyers may be apprehensive amid high home prices and increasing mortgage rates. Pending home sales also disappointed, dropping 4.1% from a month earlier to an almost two-year low. Durable goods orders dropped 2.2% last month, worse than anticipated amid a drop in orders for commercial aircraft. Core capital goods orders, a proxy for capital expenditures, fell three tenths of one percent after an upwardly revised gain in January.
In the week ahead, investors will continue to assess the implications of the war in Ukraine and of the Fed’s hawkish shift. The economic calendar is busy, with key measures on consumer confidence, economic growth, and the labor market. The Job Openings and Labor Turnover Survey, or JOLTS report, is expected to show that there were still 11 million job openings in the U.S. in February, a sign of the labor shortage. The March employment situation report from the Bureau of Labor Statistics is forecast to show nearly half a million workers were added to payrolls in March and another drop in the unemployment rate.
As always, we’ll be watching and reporting back to you. Thank you.
