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Weekly Market Update for April 22, 2022

by Jared Plotz

Markets ended the week on a rough note, falling in both Thursday and Friday trading. The 10-yr Treasury pushed another 7 basis points higher on further “tightening” remarks from Federal Reserve members. While the path of least resistance for the market was lower, we are nearing a point where we question how much more “hawkish” the Fed can realistically become. If a soft landing – cooling inflation while keeping the economy in expansion – is the goal, interest rate expectations may not be able to move up too much further without risking tipping the economy into an unwanted contraction.

Investors are now expecting 50 basis point hikes at each of the May, June, July and September meetings, and then two 25 basis point hikes before the year is out. The potential for a 75 basis point hike or an emergency Fed meeting has even crept into conversation. With estimates for Q1 GDP having now fallen to 1.0-1.5%, and estimates for Q4 having fallen to 2.0-2.5%, the cushion for Fed policy has narrowed.

On the economic data front, preliminary estimates of April manufacturing activity surprised to the upside, while services activity came in below forecasts. Homebuilder confidence was the lowest since last September, as expected given the backup in rates. Ongoing home price increases, interest rates, and construction costs are not only hitting builder confidence but also sales traffic. Affordability is declining and builders are forced to shift more new construction starts to multi-family projects from single-family units.

Only 20% of the S&P 500 constituents have reported Q1 earnings thus far. Bank of America showed strong loan growth and trading activity that drove a revenue and earnings beat.  Silicon Valley Bank, a holding within both equity and fixed income strategies, reported a “beat and raise” driven by strong 7% sequential loan growth and margin expansion. Netflix (non-holding) fell 35% after the company revealed a 200,000 decline in subscribers versus expectations for a 2.5 million increase. The company noted headwinds from password sharing and streaming competition – a crackdown in password sharing may be coming.

Next week is the big tech week, with earnings reports from Amazon, Apple, Facebook, Google, and Microsoft expected. These large-cap technology companies are core holdings within our equity portfolios and also make up a large portion of the major indices. On Thursday, we will get the first estimate of Q1 GDP. The economy is expected to have grown over 4% from a year ago, but the rate of change (annualized, quarter over quarter) to have slowed to under 2%. Further housing data will also trickle in.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

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