Market Update: April 28, 2023

 

The market had a tough session on Tuesday April 25th with large growth companies pulling back significantly throughout the session. That dynamic reversed slightly the next day with strong rallies out of Microsoft and other tech firms. But we are still range bound in a fair-sized sideways trading pattern since February.

In the news this week, First Republic Bank reported a tough earnings session for the first quarter of 2023. The shares fell significantly throughout the day on Wednesday April 26. Microsoft’s acquisition of video game producer Activision was blocked by the United Kingdom. And Facebook parent company, Meta, saw its first sales increase in a year.

For the past year and a half, the market has primarily been reacting to headlines concerning inflation and the Federal Reserve. Recently, that narrative seems to have changed. Obviously, the market reacted negatively to the news of bank closures a couple of months ago. That risk in particular has not gone away. Shown here is the deposit outflow data from the First Republic Bank earnings call earlier this week. Total deposit outflows from the 4th quarter of 2022 to the 1st quarter of 2023 showed a total deposit outflow of 41% or $72 billion. Outflows in low interest checking accounts were also significant. Likewise, borrowing from the Federal Reserve Emergency short-term borrowing window also increased significantly indicating that outflows put severe distress on the bank throughout the quarter.

The rest of the earnings season has generally been seen as positive through the first week. The Communications services, Staples, Energy, Health Care, and Materials sector all showed a 100% hit rate on earnings beats through the end of last week. 76% of firms in the S&P 500 reported earnings beats, above market expectations for the first quarter of 2023. And the market has responded positively to those companies who have beaten expectations like Facebook and Microsoft. So, adding it all together, there are still some serious headwinds in the financial sector but at the same time, earnings are coming in better than expected. Thus, the market remains rangebound.

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Sources:

1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved April 27, 2023, from FactSet Database.

2.Ryan, Sean. FactSet Research Systems. (n.d.). Factset Insights. “Bank Crisis in Remission but not over.” Written April 26, 2023. Retrieved from https://insight.factset.com/bank-crisis-in-remission-but-not-over

3.Butters, John. FactSet Research Systems. (n.d.). Factset Insights. “S&P 500 Earnings Season Update: April 21, 2023.” Written April 21, 2023. Retrieved from https://insight.factset.com/sp-500-earnings-season-update-april-21-2023

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