Weekly market update

Despite headwinds from the banking sector, the Fed’s tenth consecutive rate hike announcement, and the looming debt ceiling, bulls were able to salvage the week as Apple’s earnings and the April jobs report proved to be better than expected and enabled the S&P 500 to rise over 1.8% on Friday and claw back most of its losses from earlier in the week.  Entering the week, JPMorgan emerged as the winner of a weekend auction for the third bank to be taken over by the FDIC in less than two months, this time First Republic Bank, and JPMorgan CEO Jaime Dimon declared “This part of the crisis is over”.  However, markets were not convinced, and regional banks continued to trade wildly as investors braced for potential contagion.  Despite the banking woes the Federal Reserve still hiked another 25 basis points (0.25%) on Wednesday, and this further weighed on markets as investors are increasingly worried that the Fed is making a policy mistake.  However, Apple’s earnings on Thursday night beat expectations on surprising iPhone strength and once again big tech earnings buoyed markets.  In addition, with concerns of a Fed induced hard landing rising, markets cheered a better-than-expected April jobs report on Friday morning as the US added 253K nonfarm payrolls and the unemployment rate fell to 3.4%, against expectations for 3.6%.  Next week investor attention will shift from the first quarter earnings season that is about 85% complete to important inflation reports, the consumer price index (CPI) on Wednesday and the producer price index (PPI) on Thursday.

BLAME CALIFORNIA?

On Monday Treasury Secretary Janet Yellen announced that the US government might be unable to pay its bills "by early June, and potentially as early as June 1", and we wanted to highlight a rather unusual reason for why the debt ceiling timeline has accelerated.  Entering the year, Goldman Sachs anticipated April tax filing related receipts to fall 28% year-over-year, which equated to an early August debt limit timeline.  However, over the last few weeks indications of tax receipts have fallen between 30% and 40% and with the Treasury taking in less revenue, Wall Street has materially adjusted its debt ceiling forecasts.  Certainly, the slowing economy and poor market performance in 2022 is the biggest contributor, but delayed tax payments for most California residents appear to be having a material impact.  In February, the IRS delayed the 2022 tax filing deadline from April 18th to October 18th for residents of areas affected by weather-related disasters, which includes most Californians.  The exact impact of the filing delay is unclear, but so far CA is contributing almost $20B less than a year ago (see chart below).

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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