Weekly Economic Update: April 11th, 2022

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April 11th, 2022

Author: SteelPeak Wealth –  Institute of Portfolio Management

Equity markets pulled back last week after three consecutive weeks of gains. The S&P 500 fell 1% while the interest rate sensitive Nasdaq fell 3.5%. The yield on the 10-year Treasury moved up to 2.75%, up from 1.5% at the end of last year. As a result, the bond market is suffering one of largest drawdowns in recent history. Prolonged COVID-19 lockdowns in China, and the ongoing war in Ukraine, continue to strain supply chains and put upward pressure on inflation. Crude oil is back in the low 90s after reaching a high of 130 last month.

This week, two key measures of inflation will be released: the Consumer Price Index on Tuesday, and the Producer Price Index on Wednesday. Inflation has been rising at its hottest pace in 40 years, and this data is not expected to show a deceleration. The spike in crude oil during March will likely push this month’s inflation data to another 40-year high. The chart below shows the Consumer Price Index going back to 1915.

The Fed is attempting to play catchup by signaling a sequence of interest rate increases and a reduction of its nearly $9 trillion balance sheet. The next Fed policy meeting is scheduled for May 4th, so this month’s inflation data will likely have a meaningful impact on its decisions in three weeks. Since the start of the year, the 10-year Treasury yield has risen from 1.5% to 2.75% and the 2-year Treasury yield has risen from 0.73% to 2.56%. The chart below shows the 2-year and 10-year Treasury yields over the last three years.

Bond prices move in the opposite direction of interest rates, and as a result, 2022 has been a challenging environment for fixed income. The chart below shows peak-to-trough decline for the US aggregate bond index since 2004. The current 10% drawdown just surpassed the decline experienced during the onset of the pandemic and is second only to the sharp selloff seen following the Lehman bankruptcy in 2008.

 

The current economic cycle is evolving much more rapidly than the post-2008 expansion. Back then, the Fed was struggling to create enough inflation and thus kept interest rates at zero for seven years. Today, inflation is running higher than expected and caused the Fed to raise rates after 2 years. Higher interest rates suppress economic activity, but the challenge is the impact often occurs with a significant lag. Markets will be watching economic data as well as corporate earnings for signs that inflation is peaking and/or the economy is decelerating.



T I P   O F   T H E   W E E K


While well-meaning friends and family members may offer “advice” about your personal finances, remember that they may lack the education and perspective of a financial services professional.

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THE WEEK AHEAD: KEY ECONOMIC DATA

Tuesday: Consumer Price Index (CPI).

Wednesday: Producer Price Index (PPI).

Thursday: Jobless Claims. Retail Sales. Consumer Sentiment.

Friday: Industrial Production.

Source: Econoday, April 8, 2022

The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

 

THE WEEK AHEAD: COMPANIES REPORTING EARNINGS

Tuesday: CarMax, Inc. (KMX), Albertsons Companies, Inc. (ACI).

Wednesday: JPMorgan Chase & Co. (JPM), Delta Air Lines, Inc. (DAL), BlackRock, Inc. (BLK).

Thursday: UnitedHealth Group (UNH), The Goldman Sachs Group, Inc. (GS), Wells Fargo & Co. (WFC), Morgan Stanley (MS), The PNC Financial Services Group, Inc. (PNC).

Source: Zacks, April 8, 2022

Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.

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Q U O T E   O F   T H E   W E E K

 

“It has always seemed strange to me that in our endless discussions about education so little stress is laid on the pleasure of becoming an educated person, the enormous interest it adds to life.”

EDITH HAMILTON

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T H E   W E E K L Y   R I D D L E

When you take away the whole from this, you still have some leftover. What is it?

LAST WEEK’S RIDDLE: What do a shark, a zipper, and a comb all have in common?

ANSWER: They all have teeth.

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SteelPeak Wealth –

Institute of Portfolio Management

For more financial news and resources, visit our Insights page ⇒

 


 
Steel Peak Wealth Management, LLC (“SteelPeak Wealth”) is an SEC registered investment adviser located in California. There is no guarantee that any views, projections and/or opinions expressed herein will come to pass. This report should not be construed by any prospective investor as SteelPeak Wealth’s rendering of any personalized investment advice. Information on the registration status of SteelPeak Wealth is available at www.adviserinfo.sec.gov. A copy of SteelPeak Wealth’s current written disclosure brochure is available upon written request.
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
Please consult your financial professional for additional information.

Certain information contained herein has been provided by, or obtained from, third party sources. While SteelPeak Wealth believes that such sources are reliable, it cannot guarantee the accuracy of any such information and does not represent that such information is accurate or complete.

CITATIONS:
1. The Wall Street Journal, April 8, 2022
2. The Wall Street Journal, April 8, 2022
3. The Wall Street Journal, April 8, 2022
4. CNBC, April 6, 2022

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