Financial markets closed the week mixed as the Nasdaq rose +1.4%, hitting a record high thanks to Nvidia’s strong results. The S&P 500 was flat, while the Dow Jones fell -2.3% after a 606-point drop. Concerns over economic data and hawkish FOMC talk led to a rise in bond yields, with the 10-Yr. Treasury climbing to 4.47% over the past eight business days.
Data suggests that America’s consumers are feeling the impact of higher interest rates, inflation, and slow wage growth. The majority of current inflation stems from rising shelter costs and auto insurance prices, with other categories experiencing less than 1% inflation. Retailers’ Q1 earnings reports reflect a slowdown in consumer spending, with companies like Walmart, Target, and McDonald’s indicating challenges faced by consumers.
The Fed’s policy decisions appear to be based on lagging indicators rather than leading ones, leading to concerns of being late to address economic challenges. Leading indicators have been negative since mid-2022, hinting at a possible recession. Consumers, having spent down excess savings, are showing signs of financial strain, with rising delinquencies in credit card, auto loan, and mortgage payments.
Mortgage refinance activity has spiked, indicating consumers are struggling to manage bills amid rising interest rates. Housing, a significant contributor to GDP, is showing signs of weakness, with new home sales down, inventories up, and prices falling. Q1 GDP growth dropped to +1.6%, with forecasts suggesting Q2 could be weaker. Regional Federal Reserve banks have revised their growth forecasts downward.
Commercial Real Estate foreclosures continue to rise, with notable properties like Westin Hotel and Pacific Place Mall facing foreclosure. The equity market, responding to incoming economic data, witnessed the Nasdaq’s gain thanks to Nvidia, while the S&P 500 remained flat and the Dow Industrials fell. The consumer, a key driver of GDP, appears to be struggling, with increasing reliance on credit to manage expenses and rising delinquencies.
