Farmers & Merchants Bank

Everything is in the Green for the First Quarter

Equity indices remained resilient with gains above 1% on the week. Small caps remain the laggard as macro-economic data begins to show early cracks. The S&P 500 is up about 7% in three weeks from its March low but remains a little more than 2% below the year-to-date (YTD) high set on the first day of February.

Core bonds were up an even stronger 1.8% this week as yields continue to move lower. First quarter results were strong across the board with everything up. The S&P 500 advanced 7.5% with the NASDAQ up 17.1%. Foreign developed equity indices outpaced the United States while core fixed income was up 3.0%.

OPEC Announces Surprise Cut

We had a different variety of Sunday drama with OPEC+ announcing a surprise cut to oil production. Domestic oil prices were up 6% on Monday and have traded in an extremely tight range all week. They are sitting at the upper end of a multi-month range amid low inventories but offsetting weakening economic conditions.

The predominant commodity of late is gold, which is up 10% YTD and trading very close to all time highs. All the gains for the year came after the banking issues as speculators saw the policy response and began anticipating strong fiscal and monetary action should the economy weaken materially.

Economic Data Begins to Surprise to the Downside

Core Personal Consumption Expenditures (PCE), the Fed’s preferred inflation figure, was down sequentially to +4.6% versus the prior year. The Fed Funds rate of 5.0% has now gone above this inflation metric as it has in every other cycle. Many did not believe this would be possible without major damage to asset markets.

The Atlanta Fed GDPNOW has gone from 3.5% growth in the first quarter to a forecast of just 1.5% in a couple weeks.

• Personal income for February was weaker than expected.
• ISM Manufacturing missed expectations and new orders remain weak at 44.4.
• ISM Services, which has been volatile of late, was 51.2 and well below expectations. New orders fell from 62.6 to 52.2.

The labor market data took a noticeable turn to the south this week as job openings fell significantly. Job cuts via the Challenger, Grey, and Christmas Survey have surged to 270,000 over a three-month span. The series is only a decade old, but this is well above normal. ADP reported private job growth of 145,000, again below expectations. Nonfarm payrolls are reported Friday and will garner extra attention given other reports, but there is a lot of smoothing in this series and large changes are unlikely.