Weekly Market Commentary
Interest Rate Increases may be Curtailing Inflation
Posted on April 17, 2023
Market Commentary by Larson COO Mitchell Wood
|Last Week, the Major Markets closed mostly higher with only a slight loss in the MSCI World Index. Emerging Markets managed to mark the greatest gains followed closely behind by the Dow Jones Industrial Average.|
The .79 percent gain for the S&P 500 was truly the result of Thursday’s 1.33 percentage point daily gain. The remainder of the week was fairly muted as the other trading sessions closed less than a half percentage point from the preceding days.
|Digging through the economic headlines, it was Thursday’s release of the Producer Price Index that stimulated the markets.|
|Both the headline PPI reading, as well as the Core PPI number (which strips out the food and energy costs), fell significantly short of estimates. These results implied that the Federal Reserve’s increases in interest rates were having the intended effect of curtailing inflation.|
For interest rates, the market has priced in one last increase to the Fed Funds rate, following the May meeting with the greatest probability of rates peaking at 500-525 basis points. This possibility was given additional weight following the release of the March FOMC Minutes.
In the minutes, Member of the Federal Open Market Committee highlighted their concerns for the future of the market.
The minutes read: “For some time, the forecast for the U.S. economy prepared by the staff had featured subdued real GDP growth for this year and some softening in the labor market. Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”
These concerns corresponded with an increase in the yield curve within the treasury market. The 3-Month stood as the highwater mark for the yield curve. Moreover, Friday’s closing yield of 5.14 percent represents a 16-year high, just prior to the last recession.
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