Here’s The Asset Guidance Group Outlook for the Week Ahead… 

Inflation is no longer on the forefront as the banking crisis and its potential second and third order effects on the economy dominate the headlines. The focus has abruptly shifted from how high the Fed’s terminal rate will be to how quickly they may have to cut rates to prevent financial instability. To that point, the two-year Treasury note yield is on track for its biggest monthly drop since the 2008 financial crisis, ending last week near 3.78% after having peaked above 5%. This week the main economic event will be the Fed’s preferred inflation gauge on Friday. Last month’s core PCE index ticked up to 4.7% YoY, but with consumer spending expected to have slowed in February, the Fed will be looking for a drop in price growth. Australia, Germany, and the Eurozone will also release consumer inflation figures during the week. In the U.S., other events on the calendar include consumer confidence, the final reading of Q4 2022 GDP, trade balance figures, and pending
home sales. Overseas, Germany’s business and consumer sentiment along with China’s PMIs round out the economic docket. [1]

Recapping Last Week

U.S. equities endured another volatile week, ending with mixed performance as
investors reacted to the FOMC’s latest rate hike and the ongoing banking crisis. The
Nasdaq Composite added 1.5%+ as demand for large cap technology shares continued, while the S&P500 rose 1.4%. The Russell 2000 managed a 0.5% gain even as financials remained under pressure. S&P500 sector performance was also divided. Communications, materials and technology led the gainers, while real estate and utilities fell 2%. After touching a 15-month low last Monday, crude oil reversed for a 4% weekly gain, while gold prices were flat. U.S. Treasury yields tumbled after the Fed raised its benchmark rate 25bps to a target range of 4.75-5% while acknowledging that the hiking cycle is likely nearing its end. Consensus FOMC projections point to a peak rate of 5.1%, but there is considerable conflict as some Fed officials see rates going even higher to combat stubbornly elevated inflation and the strong labor market. However, fed funds futures are forecasting rate cuts starting as early as June. Adding to the uncertainty were statements from Treasury
Secretary Yellen, as she said her department would be prepared to take additional
actions to stabilize banks, a departure from comments made the prior day. In other
news, U.S. flash PMIs surged in March as demand improved and new orders expanded, further complicating the Fed’s battle to bring inflation down. A dip in mortgage rates strengthened February’s U.S. housing numbers. New home sales rose 1.1% MoM, while existing home sales jumped 14.5% despite still very low supply. Internationally, after UBS agreed to buy Credit Suisse earlier in the week, concerns spread to other European banks. ECB President Lagarde tried to reassure investors but shares of Deutsche Bank sank Friday as its credit default swaps unexpectedly jumped. The Bank of England raised rates by 25bps after UK inflation reversed recent declines, expanding to +10.4% YoY in February. Germany’s manufacturing PMI plunged to a nearly 3-year low in March, while the broader Eurozone saw services continue to compensate for lagging industrial performance. Finally, Japan’s core consumer inflation slowed in February largely due to government energy subsidies, as high food and necessities costs persisted. [2]

Chart of the Week:

The Dow Jones U.S.Real Estate Index ($DJUSRE) fell 4% last week before recovering
half the losses on concerns of tightening lending  requirements and higher interest rates for commercial real estate. With shorter term financing versus residential properties, roughly $270B in
commercial mortgages are coming due this year. Over 80% of those loans are held with smaller banks that are
understandably going to be more reserved in refinancing after recent failures. Nearly 60% of banks tightened
lending in January due to higher interest rates and reduced building utilization
post-pandemic. Based on Powell and Yellen’s statements on Wednesday, investors will still be on alert. 

 Click here to view chart. [3]

Sources: [1] [2] [3] tdainstitutional.com tdainstitutional.com; Any performance data reported by Asset Guidance Group, LLC has been grouped and reported by kwanti.com, imported from TDAmeritrade Institutional, Risk categories as scored by Grable-Lytton test and grouped by like risk tolerance levels; NOTE: individual account performance grouped solely by model classification type in terms of risk tolerance. Individual portfolios include equivalent equities exposures via like models, but many may hold additional investments like structured notes, fixed income investments such as CDs, bonds, and other individually preferred securities. 1-Week risk score denotes overall performance of all AGG client portfolios grouped together by like-risk tolerance scores not by identical investment allocations; [4] [5] Macro Monday (tdainstitutional.com);

*All other Asset Guidance Group analysis, www.stockcharts.com; All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat,0020Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Chart from Indeed’s Hiring Lab.

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