Market Update: April 21, 2023

 

Not a lot of action this week as volatility continues to fall and the market remains range bound over the last few months. Neither bulls nor bears have control of this market.

In the news this week, the Federal Reserve is re-examining 2019 decisions to deregulate midsized banks following the collapse of Silicon Valley Bank. Europe’s economy grows despite economic headwinds in the financial sector. And Apple launches a new savings account with a high interest rate.

Looking at our leading indicators of market volatility, there is definitely a mixed bag on what the markets and the economy look like over the next 6-12 months. Shown here is the semiconductor ETF price performance relative to the S&P 500. Recently, semiconductors have been a great leading indicator of the health of the market and the economy. In the bull market prior to COVID, and during COVID, semiconductors outperformed the broader market signaling a healthy economy. When this index peaked in late 2021, that signaled the start of the 2022 bear market. We’ve had a nice little rally that coincided with this recent stock market run. But we’ve had a small little pullback recently and we’ll see if that is sustained.

Discretionary stocks continue to slightly edge out staples. As investors seek to add a bit more risk to their portfolio, they will forgo staples in light of higher risk, higher reward discretionary. We’ve also had a bit of a return to staples since the banking issue but so far the trend has remained positive.

Odds are very high of another 25 basis point hike at the beginning of May. Although the bond market appears to be signaling the end of rate hikes beyond May.

And the yield curve remains inverted signaling at least some kind of economic turbulence ahead. But so far, we haven’t seen anything significant break yet beyond a few banks leveraged to the venture capital system.

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Sources:

1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved April 21, 2023, from FactSet Database.

2.FactSet Research Systems. (n.d.). SOXX relative to S&P 500 (Interactive Charts). Retrieved April 21, 2023, from FactSet Database.

3.FactSet Research Systems. (n.d.). Equal weight consumer discretionary relative to equal weight consumer staples (Interactive Charts). Retrieved April 21, 2023, from FactSet Database.

4.FactSet Research Systems. (n.d.). Policy Rate Tracker (Markets). Retrieved April 21, 2023, from FactSet Database.

5.Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity [T10Y2Y], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/T10Y2Y, April 20, 2023.

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