There are widespread expectations the lockdown in China and ongoing war in Ukraine will disrupt global growth and slow business activity in the United States. Economic developments in the next few months will provide some indication of the extent to which these expectations materialize.
Happy Easter and Passover to all.
The Week That Was
Based on the latest data, first quarter current-dollar spending likely increased at close to a 10 percent annual rate from the fourth quarter.
Inflation measures are near 7 percent, which would leave 3 percent for real growth.
This week’s March retail sales report shows first quarter sales up at an 18 percent annual rate from the fourth quarter, but up at only a 6 percent annual rate for the month.
Retail sales data are highly erratic, particularly on a monthly basis. More reliable data on all consumer spending showed February spending up at a 10 percent rate from its fourth quarter average.
Inflation continued to soar. March consumer prices rose at a 16 percent annualized rate from February and are up at an 8½ percent annual rate year-over-year. Core inflation (ex-food and energy) performed better, increasing at a 4 percent annualized rate for the month and 6½ percent year-over-year.
The news was worst for March producer prices of finished goods. They rose at a 25 percent annualized rate and were up 15 percent for the past year.
Weekly unemployment numbers show initial unemployment claims rose to 185,000 in the week ending April 9th, up from 175,000 in March. The
number of people receiving unemployment insurance benefits continued to decline, moving slightly below 1.5 million. Weekly employment data are too erratic to allow any conclusions regarding a change in labor market conditions.
Money, Money, Money
Interest rates continue to move sharply higher, with the 10-year Treasury at a new recent high of 2.83 percent and Moody’s AAA corporate yield at 3.8 percent.
Despite the surge, rates remain far below likely inflation.
Things to Come
Most of the scheduled economic news this coming week deals with housing activity. Of all housing data, the most important is the
Homebuilders’ survey. The report for early April will arrive on Monday.
In early March, the survey remained strong, with a reading of 79 (50 represents break-even activity).
Homebuilders are among the first to detect a significant shift in economic activity. Historically, when the index dips into the 60s, it begins to raise warning signals for future economic prospects. Monday’s Homebuilders’ report should provide useful insight. We’re expecting a reading in the mid-70s.
To Market, to Market
For the third consecutive week, stocks were mostly lower.
Some of the biggest companies suffered the biggest losses, as the Nasdaq and QQQs fell 3 percent to 4 percent and the S&P500 2 percent, respectively. The Dow and small caps were little changed.
The news was mostly negative. Inflation, higher interest rates, predictions of an extended war in Ukraine, and China’s self-inflicted damage over Covid hammered many stocks.
Technical indicators remain very negative, with the S&P500 below its 10-day, 50-day, and 200-day moving averages.
My stock market guru, Joe Barto, sees a likelihood of the S&P500 moving to key support at roughly 4,200. If he’s correct, it would mean the loss of another 4 percent before testing support. Despite declining to 9 percent below its peak, the S&P500 remains 26 percent above its fundamental value.
An overvalued market, negative technical indicators, and the prospects for higher interest rates point to elevated risks for investing in stocks.
Outlook
Economic Fundamentals: mixed
Stock Valuation: S&P 500 overvalued by 26 percent
Monetary Policy: highly expansive
