Market Events This Week

This week, pivotal market events are poised to exert substantial influence on interest rates and financial markets:

1. March Retail Sales Data: Investors are eagerly awaiting the latest retail sales figures to uncover consumer spending trends which is crucial for economic growth forecasts and inflation expectations. March witnessed robust retail sales growth, exceeding expectations by 0.4%. Particularly notable was the 1.1% surge in core retail sales, indicating broad-based consumer spending resilience. Consequently, market sentiment has shifted, with the likelihood of a July rate cut falling below 50%, eliciting a sharp bond market reaction.

2. Fed Chair Powell's Address: Federal Reserve Chair Jerome Powell's commentary holds significant weight in providing insights into the central bank's monetary policy stance, notably regarding interest rates and inflation management.

3. Existing Home Sales Data: The release of existing home sales data is anticipated to offer critical insights into the housing market's state, impacting mortgage rates and broader economic sentiment.

4. Philly Fed Manufacturing Index: This index serves as a barometer for manufacturing activity in the Philadelphia region, influencing market expectations for growth and inflation.

5. S&P 500 Earnings Reports (~10%): As a substantial segment of S&P 500 companies unveils their earnings, market sentiment may fluctuate in response to corporate performance and outlooks, affecting investor risk appetite and market dynamics.

6. Federal Reserve Speaker Events (Throughout the Week): With 13 Federal Reserve speaker events scheduled, investor attention will be keenly focused on policymakers' remarks for clues regarding future monetary policy decisions, particularly interest rate adjustments.

These events unfold against a backdrop of heightened geopolitical tensions, introducing additional layers of uncertainty to market dynamics.

Effects of Higher Interest Rates:

The impact of rising interest rates extends across various sectors:

For Borrowers: Elevated rates translate into increased interest expenses for credit card holders and higher monthly payments for auto loans and mortgages, potentially affecting consumer spending and housing market activity.

For the Government: Escalating interest expenses on US public debt divert funds from other government priorities, influencing fiscal policy and government spending dynamics.

For Savers: Higher rates present an opportunity for savers to earn increased yields on their savings, albeit with the national average rate on savings accounts remaining relatively low.

For Investors: Bond yields may witness an uptick as market expectations regarding interest rates adjust. Despite recent market volatility, maintaining a long-term investment strategy is advised, with potential opportunities emerging amidst market fluctuations.

Real Estate Dynamics

US home prices continue their upward trajectory, despite prevailing high interest rates. Low inventory levels contribute to sustained price growth, underscoring the importance of prudent home buying decisions amidst market dynamics.

Maintaining a balanced approach and considering long-term implications remain paramount amidst evolving market conditions.

On the employment front, a cooling job market with rising unemployment might prompt the Fed to consider rate cuts sooner. However, March's Jobs Report, which showed overall strength including a decrease in the unemployment rate, may not accelerate the timeline for rate adjustments. The unemployment rate went down to 3.8% and there were over 300,000 new jobs created. Businesses don’t hire people if they’re not making money. This is another signal to the Fed that the economy is doing very well despite higher rates. 

Wholesale inflation, as measured by the Producer Price Index (PPI), rose by 0.2% in March, slightly below estimates. The annual PPI increase to 2.1% was better than expected, and Core PPI aligned with forecasts. While the monthly PPI readings were favorable, that wasn’t enough to balance the markets after the hot CPI readings. Mortgage rates jumped last week, and again today. The average 30 year rate is now at 7.44%.