Stocks Rally to End Volatile Week – 5.8.23

Equities jumped higher on Friday, partially offsetting four days of declines earlier in the week. On the week, the S&P 500 weakened 0.78% and the DJIA declined 1.23%. The tech-heavy Nasdaq eked out 0.09%, helped by Apple’s results posted on Thursday. International equities had modest gains of 0.20% for developed markets and 0.52% for emerging markets. Fixed income was extremely volatile as the Fed delivered what was expected to be their last rate hike of this cycle, increasing the federal funds rate by another 0.25% to a range of 5.00-5.25%. The benchmark Bloomberg U.S. Aggregate finished the week down 0.05%. The yield curve became less inverted with the 2yr U.S. Treasury dropping to 3.92% and the 10yr U.S. Treasury finishing flat to close at 3.44%. Gold was a positive contributor last week, finishing up 1.37%. Oil (WTI) continued to move lower closing at $68.56/barrel.

It is certainly up for debate, within the analyst community, whether a recession is on the horizon. Economic data in recent months has pointed to a slowing economy in the face of higher interest rates. Yet, despite expectations of a slowdown, last week’s monthly payroll reports painted a completely different picture. April saw an increase of 253,000 jobs (much higher than estimates), with unemployment of 3.4% matching a low from 1969. The low jobless number has kept upward pressure on wages, which are up 4.4% from a year earlier.

Equity markets have been clinging to gains so far in 2023. Entering the quarter, it was expected that earnings would decline 6.3%, but results so far show a contraction of 3.7%, much better than feared. In fact, S&P 500 is posting their best performance relative to analysts’ expectations since Q4 2021. We are continuing to have a bias towards quality for stock and bond selection to help us navigate this period of increased uncertainty.

“Our satisfactory results have been the products of about a dozen truly good decisions. That would be about one every five years.”Warren Buffett