First Quarter | Weekly Extract May 2

In light of another possible rate hike, markets have been very volatile to end the first quarter of the year. After inflation data largely met expectations, US stocks rallied. All 3 major U.S. indices posted gains to end the week.

Inflation indicators

Observed inflation indicators ticked higher as predicted, supporting predictions that the Federal Reserve will raise interest rates by another quarter percentage point the following week. The personal consumption expenditures index increased by 4.2% y/y in March after increasing by 5.1% y/y in February. PCE increased by 0.1% month-over-month, less than expected. In contrast to estimates of a 4.5% increase, underlying PCE, which excludes food and energy prices, rose 4.6%.

The earnings announcement coincides with indicators of a faltering economy. A smaller-than-expected 1.1% increase in first-quarter gross domestic product on Thursday raised concerns that the economy would slip into recession. The Fed is expected to raise rates next week, followed by a pause at its June meeting, according to futures traders.

Equity market

Turning to the equity market, the S&P 500 after a Thursday rally that was its largest daily gain since January 6, closed 0.8% higher for the week. With a 0.7% gain on Friday, the Nasdaq Composite index posted its first three-day winning streak in a month. The tech index gained 1.3% for the week and was up slightly in April. Strong gains by Meta, Microsoft and Alphabet this week helped boost Wall Street. Nearly 80% of S&P 500 companies have reported results so far, with earnings beating expectations in more than half of those cases.

The financial sector, on the other hand, managed to maintain its earnings despite a 40% decline at First Republic Bank. Also, according to some reports, authorities are considering placing the mid-sized U.S. lender into receivership to facilitate a sale to another bank. Growth at Comerica Inc, U.S. Bancorp, and Zions Bancorporation contributed to the approximately 2% increase in the overall regional banking sector.