Market Commentary - April 2023

April came and went with much less drama compared to the regional banking crisis that dominated headlines in March. Meanwhile, the S&P 500 nudged up another +60 points and the S&P 500/TSX moved higher +536 points to close the month at 4,169.48 and 20,636.54 respectively. On the jobs front Canada saw 41,400 jobs added in April, leaving the unemployment rate of 5% unchanged since December 2022. In the U.S. the unemployment rate fell to 3.4%, the lowest level since 1969. Wage growth picked up, with average hourly earnings up 0.5%, lifting the annual rate to 4.4%. In addition, the April ISM services purchasing managers index unexpectedly rose 0.7 points to 51.9 and the manufacturing ISM climbed to 47.1 rebounding from a three-year March low.

In the latest Senior Loan Officer Opinion Survey provided by the Fed, Q1 saw tighter standard and weaker demand for C&I loans (commercial and industrial) to large-and middle market firms, as well as small firms. The report said banks also reported tighter standards and weaker demand for all CRE loan categories. For households, bank lending standards tightened and demand weakened across residential real estate. Looking beyond Q1, results show that respondents expect a less favorable economic outlook, reduced tolerance for risk, deterioration in collateral values, and concerns about banks’ funding costs and liquidity positions. April’s edition of the NY Fed’s Survey of Consumer Expectations reports that respondents’ forecast for year-ahead inflation dropped to 4.4% from 4.7% in March, rising slightly at the three-year (to 2.9% from 2.8%) and five-year (2.6% from 2.5%) time horizons. At the same time, median year-ahead home price expectations rose to 2.5% from the prior 1.7%. There was no change in year-ahead job earnings, but there was a rise in expectations for losing one’s job in the next year (to 12.2% from the prior 11.4%). There was also a decline in perceived chances of finding a new job if the current job is lost (55.2% from March’s 57.6%). Household spending growth expectations for the next year dropped to 5.2% from the prior 5.7%, with the drop most pronounced among respondents with annual incomes above $50K. Yet, perceptions about households’ current financial status improved, with fewer respondents being worse off than a year ago. We take this data in stride and add it to the ongoing economic normalization. In other words, things are improving, albeit slow. Nevertheless, earnings season is winding down with 85% of S&P 500 companies having now reported for Q1, and 79% have beaten consensus EPS expectations. A result that gives us confidence, especially considering the one-year average is 73% and the five-year average is 77%. In aggregate, companies are reporting earnings that are 7.0% above expectations.