Markets struggled to make significant headway for the third week in a row. All major developed markets finished the week fractionally down, reflecting mixed signals coming from a range of technical and economic indicators.
Positive share price moves during the first quarter of 2023 suggest that this critically important US corporate earnings season will not be as bad as expected (expectations are for a headline -8% contraction). We are now in the proverbial ‘belly’ of the reporting period, with the proportion of companies beating consensus expectations at over 75%, according to FactSet.
Key trends will be closely watched, including any lasting impact of the recent Silicon Valley Bank debacle. Early announcements from the bigger banks (JPM, Citi, Wells Fargo) have been well received, but First Republic sold down sharply (-20%) on weak results, indicating more significant problems for regional banks that have suffered acute deposit withdrawals in recent weeks.
If October 2022 was ‘the low’ for this market cycle, we should expect earnings to confirm better news in the coming two reporting seasons. So far, so good. Approximately two thirds of companies will have disclosed in the coming fortnight. We should hope to have a clearer sense of the path ahead once these are wrapped up.
Turning to the housing market, the prices of existing US homes have fallen for two consecutive months for the first time in 11 years, according to the National Association of Realtors. US homebuilders have been performing surprisingly well in 2023, and the sector could see some profit taking if confidence continues to ebb.
Meanwhile in Asia, China’s government reported that the nation’s GDP grew at an annual rate of 4.5% in this year’s first quarter, as the recent removal of the country’s zero-COVID policies helped stimulate growth. It has also been complemented by a substantial uplift in nationwide residential sales data, suggesting that confidence has returned to this asset class.
In the crypto space, volatility remains a constant, with significant price corrections seen in some of the major coins. Having briefly eclipsed the psychologically and technically important $30,000 level to the upside recently, Bitcoin closed the week at a little under $27,300. It has been highly correlated to the performance of Nasdaq stocks this year, so it will be interesting top see whether this relationship holds.
Looking forward to the week ahead, the U.S. government is scheduled to release its initial estimate of first - quarter economic growth on Thursday, with most economists expecting that GDP expanded at an annual rate of around 2.0%. That would mark a modest slowdown from the fourth quarter of last year, when GDP growth was 2.6%, but still fly in the face of many predictions that have been calling for a nasty recession.