Weekly Market Commentary
April 24, 2023
Better than expected.
It’s earnings season – the time when publicly traded companies report on how profitable they were during the first quarter of 2023. So far, reports suggest that companies listed on United States stock exchanges did better than many had anticipated. Almost 20 percent of companies in the Standard & Poor’s 500 Index have reported and three-out-of-four have exceeded earnings expectations, reported John Butters of FactSet.
“At any given moment, earnings expectations reflect everything that’s happening in the world, from the economy and the Federal Reserve to interest rates and geopolitics. Right now, most of the fear stems from expectations about the economy. The Fed has lifted interest rates to tamp down inflation by reducing economic demand, and so far, that seems to be working. The rate of inflation has been cut almost in half from its post-COVID peak, but growth is slowing with it…And since higher rates operate with a lag, the full effects of the rate hikes probably haven’t been felt yet, raising the possibility of a recession,” reported Jacob Sonenshine of Barron’s.
Banks were among the first companies to report on earnings, and the news reassured investors who were concerned about financial stability after the collapse of three regional banks. Despite contributing $30 billion to bailout a regional bank, big U.S. banks generally reported healthy results and higher interest income in the first quarter, reported Max Reyes of Bloomberg.
The banks still face significant challenges. Loan delinquencies have been rising from historic lows as the pandemic policies have come to an end. The four largest lenders in the United States saw a 73 percent increase in consumer loan defaults and have significantly increased the assets set aside to cover loan losses.
Last week, many major U.S. stock indices finished the week close to where they started it, according to Barron’s. Yields on U.S. Treasuries generally moved higher before retreating a bit.
|Data as of 4/21/23||1-Week||YTD||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor’s 500 Index||-0.1%||7.7%||-5.9%||14.7%||9.1%||10.2%|
|Dow Jones Global ex-U.S. Index||-0.7||7.4||-3.8||9.2||0.0||2.1|
|10-year Treasury Note (yield only)||3.6||N/A||2.9||0.6||3.0||1.7|
|Gold (per ounce)||-2.3||8.9||1.5||5.5||8.3||3.3|
|Bloomberg Commodity Index||-2.1||-6.4||-19.6||21.1||3.4||-2.2|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
POWER OUTAGE? THERE’S A HYBRID FOR THAT. In recent years, storms have led to lengthy power outages in many parts of the United States. When ice storms knocked out the Texas power grid in the winter of 2021, some people relied on generators to supply their energy needs. Others turned to hybrid trucks, reported Paul Eisenstein of NBC News.
One hybrid truck owner in Texas purchased the optional generator feature, thinking he would use it when camping or to fire up power tools in remote areas. Instead, after the storm hit, he hooked the vehicle up to his house. For three days, it “provided enough energy to handle a refrigerator, a freezer, lights, the cable and internet box and a television.”
When the supply of generators ran low, one U.S. truck manufacturer asked its Texas dealerships to lend any hybrid trucks they had in stock to people who needed power.
Hybrid trucks that double as generators is just one example of innovation in the auto industry.
“The $4 trillion automotive industry is going through three big transformational changes at once. Two of those – the rise of electric vehicles and the gradual emergence of autonomous driving – have attracted most of the attention. But the third one could be more powerful still: Cars are becoming computers on wheels,” explained Eric Savitz of Barron’s.
There are more lines of code in automobiles than there are in jumbo jets, according to a C-suite executive at a semiconductor firm who was cited by Barron’s. In fact, automakers have been scooping up workers laid off by technology companies to help develop branded software.
Not too far in the future, it’s possible that drivers will be loyal to vehicle brands in the way they are to mobile phone brands. When drivers change brands, they’ll have to learn a new system – and that could give industry leaders a competitive advantage.
Weekly Focus – Think About It
“There are not more than five musical notes, yet the combinations of these five give rise to more melodies than can ever be heard. There are not more than five primary colors, yet in combination they produce more hues than can ever been seen. There are not more than five cardinal tastes, yet combinations of them yield more flavors than can ever be tasted.”
—Sun Tzu, philosopher