Weekly Market Commentary
Increase to the Fed Funds Rate
Posted on May 8, 2023
Market Commentary by Mitchell Wood, Larson COO
|The Major Markets closed the week mixed, as the Earnings and Economic Calendars mixed with Banking headlines which sent the markets on a roller coaster ride.
The week kicked off with the news over the weekend that First Republic Bank stood as the second-largest US bank to fail. The FDIC quickly facilitated the sale of the bank’s assets to JPMorgan Chase ahead of Monday’s open.
This placed further pressure on the S&P Regional Bank Index. The daily swings of this subsector index marked the greatest volatility of the space since Silicon Valley Bank failed in early March. Eventually, this benchmark traded to a fresh intra-year low Thursday as the YTD losses surpassed 38 percent.
All eyes shifted to the May FOMC Meeting midweek as analysts wondered how the committee would respond to the third bank failure of the year.
|In the end, the FOMC held to expectations with an additional 25 basis point increase to the Fed Funds Rate. This took the Target Range to 5.00 – 5.25 percent sending to the Effective Fund Rate to just below the peak of the 2007 rate.
While the regional bank index fell over 10 percent last week, the overall Financial sector only declined 2.65 percent. This seems to indicate that while there has been increased risk in segments of the sector, not all banks are in the same position as those that failed. Furthermore, the greatest losses at the sector level were in the Energy sector.
Energy continued the declines from earlier this year as economic growth concerns persisted. Year to date, Crude Oil Prices have fallen from around $80 a barrel to the $66 level back in March. This level was retested last week as prices closed around $68. Meanwhile, Natural Gas continued to drop as the GSCI Natural Gas Index fell over 11 percent last week to sit with a year-to-date loss exceeding 55 percent Friday.
As the week wore on, the losses in the S&P 500 mounted with each passing day. However, things changed Friday at the market open. Friday’s release of the BLS Employment Report saw a significant beat relative to expectations. April’s headline of 253,000 jobs soared past the 180,000 expected. Furthermore, the unemployment rate of 3.4 percent fell from 3.5 percent, which not only sits at a 54-year low, but also stands as a decrease in the rate when an increase was expected.
|The S&P 500® Index is a capitalization index of 500 stock-designed to measure performance of the broad domestic economy through changes in the aggregate market value of stock representing all major industries. https://us.spindices.com/indices/equity/sp-500
The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities. https://us.spindices.com/indices/equity/dow-jones-industrial-average
The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. Today the NASDAQ Composite includes over 2,500 companies, more than most other stock market indexes. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indexes. https://indexes.nasdaqomx.com/Index/Overview/COMP
The MSCI World Index, which is part of The Modern Index Strategy, is a broad global equity benchmark that represents large and mid-cap equity performance across 23 developed markets countries. It covers approximately 85% of the free float-adjusted market capitalization in each country and MSCI World benchmark does not offer exposure to emerging markets.
The MSCI Emerging Markets (EM) Index is designed to represent the performance of large- and mid-cap securities in 24 Emerging Markets countries of the Americas, Europe, the Middle East, Africa and Asia. As of December 2017, it had more than 830 constituents and covered approximately 85% of the free float-adjusted market capitalization in each country. https://www.msci.com/
The S&P GSCI Crude Oil index provides investors with a reliable and publicly available benchmark for investment performance in the crude oil market. https://us.spindices.com/indices
Companies in the S&P 500 Sector Indices are classified based on the Global Industry Classification Standard (GICS®). https://us.spindices.com/indices