The American Consumer Is The Key
Equities tried to make some progress early in the week, but finished lower overall for the week.
Four sectors - Energy, Basic Materials, Healthcare, & Utilities - did manage to post positive returns for the week. With 95% of S&P 500 companies having reported 1st quarter corporate earnings, it's important to note that 85% of S&P 500 companies have cited concerns about profits moving forward due to inflation. There are cracks in the economic picture that are increasing fears of recession.
Retail Sales last week came in as expected, but were lower month-over-month. The housing data last week - Housing Starts, NAHB Housing Index, and Existing Home Sales - were all lower month-over-month. Building Permits was the only data point that exceeded analysts' expectations, but was also lower month-over-month. Both the NY Empire State Index and Philly Fed Manufacturing Index pointed to lower manufacturing output in those regions. Industrial Production, Capacity Utilization were the lone bright spots in the economic data last week.
Personal Savings have declined below the historical average after spiking during the pandemic.
According to a recent survey by Northwestern Mutual, Americans have an average of $9,000 less in their savings than one year ago. The share of subprime accounts - auto loans, credit cards, and personal loans - that are 60 days past due has risen year-over-year. Meanwhile, the average price of gasoline in the U.S. is hitting fresh 10-year highs at $4.60/gallon.
There are doubts that the Fed can effectively achieve a “soft landing.” The market is currently pricing in a 50 basis point rate hike at the next Fed meeting on June 15th.
This week we will get critical data on the consumer in Personal Income and Personal Spending. Economists are expecting Personal Spending to have declined month-over-month. At this point, the U.S. consumer, who comprises two-thirds of GDP, is holding up the economy at the moment. Speaking of GDP, the 1st revision to GDP is expected to show no change. Equities are oversold at this point and a short-term rally could be possible, but the risk of recession is steadily increasing.