Weekly Market Update: Resilience Amidst Pressure

Market Overview:

The S&P 500 faced its third consecutive week of pressure, declining by 5.46% from its recent high. This weakness stemmed from concerns about the resilience of the economy and persistent inflation, reducing expectations of Fed rate cuts. Geopolitical tensions in the Middle East further dampened investor sentiment, causing technical damage as the index breached key support levels. However, despite setbacks, the prevailing expectation remains bullish for the year, supported by strong macro fundamentals.

Federal Reserve Insights and Economic Roundup:

Federal Reserve officials signaled a cautious approach to rate cuts amid surprisingly high inflation readings. Fed Chair Powell emphasized the need for confidence in inflation returning to the 2% target before considering lower borrowing costs, echoing sentiments echoed by Vice Chair Jefferson and other Fed officials. The Beige Book highlighted slight expansion in the US economy, but noted challenges in passing higher costs to consumers and modest price increases. Retail sales exceeded expectations in March, showcasing resilient consumer demand, while home sales declined due to high mortgage rates and elevated prices. Despite muted expectations, first-quarter earnings are surpassing forecasts, driven by the Technology, Communication Services, and Consumer Discretionary sectors.

The Week Ahead:

Key data releases include the first reading of Q1 GDP and PCE inflation. Economists anticipate a slowdown in GDP growth to 2.5% and a stable core PCE inflation rate. Additional notable releases include durable goods orders and new home sales. The earnings calendar will be busy, with 155 S&P 500 members scheduled to report, including 11 Dow Jones Industrial Average components. Fed heads will enter a quiet period ahead of the upcoming FOMC meeting on April 30/May 1.