Major stock indexes posted solid gains on Friday to end the week and the month on higher ground, in part as earnings reports from several big tech companies including Alphabet, Microsoft and Meta Platforms were received positively by investors. However, Amazon fell 4% Friday despite better than expected quarterly results, after warning growth in its cloud computing services would slow further. The Dow Jones average gained 0.9% for the week and 2.5% for the month of April, while the S&P 500 rose 0.9% for the week and 1.5% for the month, and the Nasdaq added 1.3% for the week and ended the month nearly unchanged.
While some still predict a soft landing as others double down on year-old recession bets, there’s a growing contingent who worry the US economy is headed for a stall. This week’s mixed bag of data—tepid growth, sticky inflation, better-than-expected tech earnings, a strong labor market, and most importantly high consumer spending—has renewed chatter of stagflation.
In the meantime, the banking sector continues to struggle as First Republic Bank (FRC), which has been struggling with customers fleeing the bank, reported net deposit outflows of $72 billion during its first quarter. First Republic Bank shares took another nosedive Friday, falling a whopping 43% in regular trading. Stock was down another 33% in after hours. FRC shares now stands at $2.33 from $122.50 on Mar 1, 2023.
Future Wealth’s View
The U.S. economy managed to eke out another gain in Q1 2023, with GDP growth expanding by an annualized rate of 1.1%. That severely missed estimates of 2.0% growth and was slower than the 2.6% growth seen in Q4 2022. The dynamic in which inflation remains elevated but growth is anemic is an ugly state of affairs.
While a full blown recession may or may not happen, it is our view that a rolling recession has been happening to different sectors of the economy already. Technology sector is already in recession with layoff announcements from several of the mega cap companies. This week, Tyson Foods announced a 10% reduction in workforce signaling that the consumer foods and staples sector may be the next sector to dip into a recession.
Closely watched next week will be Apple’s results and the Fed meeting. Another hike in interest rates and disappointing results from Apple could give instant credibility to the popular saying on Wall Street – “Sell in May and Go Away”.