Big wheel keep on turning Proud Mary keep on burning, rolling on a river

The estimate for economic growth for the world’s largest economy in the first quarter of 2023 was a mixed bag. The US economy expanded by 1.%, supported by consumer spending, but below expectations of 2%. The miss did not deter stock investors as US equities rallied across the board. The miss was a result of business investment growth slowing, along with a decline in inventories. A series of stronger-than-expected earnings reports from the likes of Amazon, Microsoft, Meta, Mastercard, Visa, Merck, and Caterpillar helped boost stocks. The S&P 500, having looked like it was faltering once again as it closed in on 4200, appears to want once again to try and push through.

Stock markets continue to be supported by a generally better-than-expected performance of the global economy. China’s economy rebounded better than forecast at the start of the year, and the eurozone data appears to be holding up despite the pressure from higher interest rates.

Stocks in April have marked time around the globe, as the MSCI global index is roughly where it started the month. The sectors that have held up have been the more defensive areas; consumer staples, healthcare, and energy stocks were boosted by the OPEC decision to cut production. Although that boost appears to be waning as the oil price is set for another week of declines as we rather suspected it would. Yields on US treasuries at the shorter end have risen once, in April, as markets price in more Fed rate hikes.

Next week the main event will be the Fed and how they address the many inconsistencies in the economic data. Will they take a more dovish view of life after the recent events in the banking sector, be comforted that signs inflation rates are continuing to fall, or will they press ahead, not wanting to do anything that could boost prices later in the year? There remain indications of continued stress in the banking sector as Banks increased emergency borrowing from the Federal Reserve for the second week in a row.

After a decent first half for stocks overall, the consensus view amongst market strategists is the second half is going to be a tougher one. A complete 360 from the start of the year. There could be one of many factors, inflation falling faster than interest rates, putting pressure on equity valuations, weaker economic growth, or analysts becoming too complacent on earnings expectations. Although this season looks as if it will be better than forecast overall, many CEOs presented a cautious picture for the year ahead.