Stocks Resume Climb
After rebounding to start the week, stocks weakened following higher inflation numbers out of Europe and higher-than-expected manufacturing activity.
Stocks continued their decline into early Thursday following a report of higher labor costs and low initial jobless claims. But stocks staged an afternoon relief rally on Thursday following comments by Atlanta Fed President Raphael Bostic that he was “still very firmly” supportive of increasing rates in quarter-point increments. The climb in stocks was remarkable, given that yields on 10-year Treasuries reached their highest level since November. Undeterred by a strong services data report, the upside momentum continued into the final trading day and added to the week’s gains.1
U.S. stocks bounced back nicely last week with the tech-heavy NASDAQ +2.61% leading the way on raised hopes the Fed may tailor back its rates campaign. Domestically, the DJ Industrial Average, +1.85% appreciated the least, though all major indices, domestic and international were positive.
Bonds were slightly positive across the board, although domestic fixed income investors faired slightly better than global lenders with the Bloomberg U.S. Agg Bond Index growing +0.12% vs. the Bloomberg Global Aggregate Index up +0.02%. Credit investors, particularly at lower quality, experienced strong performance with Corporate High Yield climbing +0.78%.
Apartment Rents Fall as Crush of New Supply Hits Markets: Apartment rents fell in every major metropolitan area in the U.S. over the past six months through January, a trend that is poised to continue as the biggest delivery of new apartments in nearly four decades is slated for this year. Renters with new leases in January paid a median rent that was 3.5% lower than they would have paid last August, according to estimates from listing website Apartment List. It was the first time in five years that rent fell every month over a six-month period, according to the same estimates. Four other market measures by housing-data companies also show that new-lease rents either fell or remained flat in January compared with the previous month, extending a streak of monthly rent declines that began at the end of the summer.3
Let them eat... turnips? Tomato shortage in U.K. has politicians looking for answers: It's not easy to find a tomato in the U.K. right now. And if you do, you'd better savor it. Supermarkets like Tesco and Aldi have placed strict limits on the number of tomatoes customers can buy, as well as other produce, like cucumbers and broccoli. The main issue, says Economist Tim Harford, is a bad harvest out of Spain and Morocco, where Europe and the U.K. get a lot of their winter produce. A late frost and flooding killed a lot of the crops. The second issue: energy prices. The war in Ukraine has caused energy prices in Europe to spike. So growing tomatoes in greenhouses, as they do in the U.K. and the Netherlands, has gotten so expensive, a lot of farmers haven't done it this year, which has further cut back on supply. But a lot of people are also pointing to Brexit as a culprit. Now that the U.K. isn't part of the all-important market — the European Union — it doesn't have as much muscle with suppliers when times are tight. It's in the back of the tomato line.4
Sky-High Car Prices Have Only One Direction to Go From Here: For much of the past three years, car prices knew one direction: upward. This was simple economics: There was far more demand for new vehicles than manufacturers could meet due to pandemic-related disruptions. As chips, wire harnesses and other components in short supply flow more freely again, a slow but inevitable march to normalization has begun. Tesla and Ford were among the manufacturers making noteworthy cuts the last couple months, with the latter predicting new-vehicle pricing will fall 5% in the U.S. this year.5
Reprinted with permission from BTN. Copyright © 2023 Michael A. Higley.
1 The Wall Street Journal, March 2, 2023
ISM Manufacturing PMI: PMI Surveys track sentiment among purchasing managers at manufacturing, construction and/or services firms. An overall sentiment index is generally calculated from the results of queries on production, orders, inventories, employment, prices, etc.
ISM Non-Manufacturing (Services) PMI: PMI Surveys track sentiment among purchasing managers at manufacturing, construction and/or services firms. An overall sentiment index is generally calculated from the results of queries on production, orders, inventories, employment, prices, etc. Target Audience: supply management professionals Sample Size: 300 individuals Date of Survey: through the month The Services Index is a composite index of four indicators with equal weights: Business Activity, New Orders, Employment and Supplier Deliveries. An index reading above 50% indicates an expansion and below 50% indicates a decline in the non-manufacturing economy. Whereas per Supplier Deliveries Index, above 50% indicates slower deliveries and below 50% indicates faster deliveries.
The Federal Reserve Bank of Dallas: The Federal Reserve Bank of Dallas (Dallas Fed) is part of the Federal Reserve System, the central bank of the United States.
The Dallas Fed Manufacturing Index: The Dallas Fed Manufacturing Index measures the performance of manufacturing sector in the state of Texas. The index is derived from a survey of around 100 business executives and tracks variables such as output, employment, orders and prices.
Initial unemployment claims: Initial unemployment claims track the number of people who have filed jobless claims for the first time during the specified period with the appropriate government labor office. This number represents an inflow of people receiving unemployment benefits.
Pending Home Sales: This concept tracks signed real estate contracts for existing single-family homes, condos and co-ops that have not yet closed. As such it is a leading indicator for existing home sales.
Federal Reserve (Fed): The Federal Reserve System is the central banking system of the United States of America.
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Bloomberg Barclays High Yield Corp: The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.
Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
Bloomberg Barclays Municipal Bond Index: The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.
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