Weekly Market Vibes

WHAT HAPPENED LAST WEEK

Despite a rally on Friday, the S&P 500 Index ended the week lower on comments from Federal Reserve Chair Jerome Powell that suggested a pivot to cutting rates might not occur as quickly as the market had hoped. Uneasiness surrounding the need to raise the U.S. debt ceiling may also have weighed on sentiment, as U.S. Treasury Secretary Janet Yellen notified congressional leaders in a letter that the agency might not be able to meet its debt obligations “potentially as early as June 1.” Within the S&P 500, the information technology sector fared the best and ended higher. Energy shares pulled back in sympathy with the price of West Texas Intermediate crude oil.

Yields on 10-year U.S. Treasuries fell early in the week on concerns about regional banks and the debt ceiling but moderated during Friday’s trading session.

RENEWED VOLATILITY IN BANKING SECTOR

Over the weekend, regulators took control of California-based First Republic Bank, which, like Silicon Valley Bank and Signature Bank, had struggled with large deposit outflows. JPMorgan Chase acquired most of the failed bank’s assets, and deposits not covered by federal insurance did not suffer losses. The regional banks subsector in the S&P 500 experienced significant volatility during the week, reflecting concerns about the potential for additional bank failures and the credit pressures that could arise if the economy slows and unemployment increases.

FED RAISES RATES

As expected, on May 3, the Fed increased interest rates by 25 basis points, taking the benchmark fed funds rate to a target range of 5.00% to 5.25%. The statement from the Federal Open Market Committee (FOMC) omitted previous language about anticipating “that some additional policy firming may be appropriate” and emphasized that future actions would hinge on incoming data and economic developments. During the press conference, Fed Chair Powell strongly hinted that the fed funds rate might be near the peak level for this cycle. Nevertheless, Powell also kept the option for further monetary tightening on the table, stating that “a decision to pause was not made today.” Rate cuts, according to Powell, “would not be appropriate” in a world where inflation does not come down quickly.

MIXED LABOR PICTURE

Data from the U.S. Department of Labor showed that the number of job openings shrank for a third consecutive month in March, falling to 9.59 million from 9.97 million. The decline was most pronounced in small business that have up to 49 employees. Still, with 1.6 job openings for every unemployed person, the labor market remains tight. The same report pegged layoffs at 1.8 million, an increase of 248,000 and the highest level since December.

The nonfarm payrolls report that came out May 5 likewise showed strength in the labor market, with the economy adding 253,000 new jobs in April—higher than the consensus estimate of 179,000 and the 165,000 job gains recorded in March. Average hourly earnings increased 0.5% month over month, compared with a sequential uptick of 0.3% in March.

Next week's Economic Calendar:

Monday - Chicago Fed National Activity Index and Dallas Fed Manufacturing Survey

Tuesday - Case-Schiller Home Price Index, Consumer Confidence, New Home Sales and Richmond Fed Manufacturing Index

Wednesday -Mortgage Apps, Durable Goods Orders and EIA Petroleum Status Report

Thursday - Jobless Claims, GDP and Pending Home Sales Index

Friday - Personal Income and Outlays, Employment Cost Index, Chicago PMI and Consumer Sentiment

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