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

This week’s economic calendar is considerably less crowded than the past two, as is customary following the jobs data, but contains a few important events for
consideration. In the U.S., inflation updates arrive with April CPI on Wednesday
and producer prices on Thursday. Headline CPI fell from 6% in February to 5% in
March, but core prices were stickier. The disinflation process may be losing some
momentum but softening rent and home prices may start to factor in soon. President Biden meets with congressional leaders on Tuesday with the budget and debt ceiling negotiations on the table. Yields on Treasury bills for early June have soared firmly above 5% as Secretary Yellen has warned of funding limitations that may begin in a month’s time. There are 10- and 30-year Treasury auctions this week, and May’s preliminary consumer sentiment and inflation expectations round out the domestic agenda. Overseas, monetary policy focus shifts to the UK on Thursday, where a 25bps hike is priced in with inflation still running above 10% annually. The Bank of England’s outlook may hinge on Friday’s GDP report, which is expected to reveal a sliver of growth. In Asia, China releases trade data, new loans, and inflation figures, while the Bank of Japan’s Summary of Opinions from Governor Ueda’s first meeting could merit some attention. [1]

Recapping Last Week

U.S. equities finished modestly lower in choppy trading after the FOMC hiked interest rates for the tenth time in the past year, while a strong employment report reinforced the Fed’s “higher for longer” stance. The S&P500 and Russell 2000 Indexes gave back 0.5-0.8%, while the Nasdaq Composite was flat. Eight of 11 S&P500 sectors
lost ground, led by energy’s 5%+ slide. Crude oil tumbled 7% as traders fretted over
recession risks and a brief overnight plunge in prices mid-week. Financials fell 2.5%,
with steep losses in regional banks following the seizure and sale of First Republic
Bank last Monday. U.S.Treasury yields cut most of their weekly losses on Friday after April’s non-farm payrolls increased by 253K and the unemployment rate fell to 3.4%. Average hourly earnings rose more than expected at 0.5% MoM and 4.4% YoY, but
downward revisions to prior numbers fortified perceptions of gradual labor market
cooling. Other employment data revealed a decrease in job openings and quits for March along with a jump in layoffs, while weekly unemployment claims reached 242K. Earlier in the week, the Fed hinted at but did not explicitly signal a pause in rate increases after boosting 25bps to a target range of 5-5.25%, the highest level since 2007. Still, Chair Powell said the changes in their statement were  meaningful. U.S. factory activity lifted from 3-year lows in April but remained in contraction for a sixth straight month, while the services sector continued to expand at a steady pace. U.S. worker productivity fell more than forecast in Q1 as unit labor costs surged 6.3% versus 3.3% the prior quarter. Consumer spending remained robust with
borrowing rising $26.5B in March. Internationally, the European Central Bank opted
for only a 25bps rate hike despite April’s CPI ticking up to +7% YoY. The ECB will likely stop reinvestments in its Asset Purchase Program in a move seen as a hawkish
compromise. Eurozone retail sales fell more than expected in March while German factory orders plummeted 10.7% on a slump in auto production. Australia’s central bank surprised with a 25bps, with sticky inflation to blame. Finally, China’s nascent
recovery revealed cracks as manufacturing slipped back to contraction in March. [2]

Chart of the Week:

Another rough week for regionals with First Republic Bank being the latest domino to fall, the second largest bank failure in U.S. history after Washington Mutual in 2008. Unfortunately, with the pace that interest rates have  climbed, there may be more to come, but does that put the whole system at risk? Year-to-date the S&P Regional Banks
Index ($SPSIRBK) is down over 35% compared to just 3% for the U.S. Financials Index ($DJUSFN). It’s making investors skittish but with the
S&P500 still being up 7%+ in 2023, the broader financial world doesn’t seem concerned with contagion – yet.

 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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