well-th notes

By Hightower St. Louis on April 5, 2023

Weekly data-driven insights on the markets and economy

First Week of April 2023

March Madness

Bank anxiety eased last week, helping send the S&P 500 3.5% higher for the week and 3.7% higher during March. At one point during the month the index was down by -2.8%. Fixed income, as measured by the Bloomberg U.S. Aggregate Bond Index, rose 2.5%, a significant gain for bonds, as yields fell sharply.[i] The two-year U.S. Treasury yield, for example, fell by -0.75%, the largest monthly drop since 2008.[ii]

No FANG No Gain

Tech stocks have carried the stock market this year. The Nasdaq Composite and Russell 1000 Growth indices, which are weighted more heavily toward tech companies, were up 17.1% and 14.4%, respectively, during the first quarter; whereas the Russell 1000 Value Index gained only 1.0%.[iii] The NYSE FANG+ Index, which provides exposure to 10 highly traded tech giants, has risen by more than 35% year-to-date.[iv]

Limited Commercials

Commercial property is worth only half of residential property, and commercial lenders offer a maximum of 75% of a property’s value versus the 100% offered by many residential lenders prior to the Global Financial Crisis in 2008. The Economist estimates that even if half of office loans owed to small banks defaulted, and only one-third of the underlying properties’ values three years ago was recovered, losses would amount to only 10% of small banks’ equity capital, although losses would be uneven across banks.[v]

Less from Banks for Your Buck

Research from the New York Fed shows that a 1% increase in the effective fed funds rate leads to only a 0.26% increase in the average rate on three-month certificates of deposit but a much larger 0.88% increase in the average money market fund (MMF) yield. Their analysis suggests that MMFs could grow considerably more during the months ahead, as fund flows lag monetary policy.[vi]  

Small Claims

Jobless claims data may be significantly underestimating the slowdown in the labor market. In 2022, only 26% of the unemployed who worked in the past 12 months applied for unemployment insurance. And only 14.2% of the unemployed received unemployment insurance benefits.[vii]

A Shrinking Pool

At 62.5%, the U.S. labor force participation rate is -0.8% below its February 2020 level, which translates into 2.1 million fewer workers. This drop has been almost entirely driven by aging; the share of retired workers in the U.S. population has risen from an average of 18% in 2018–19 to nearly 20% at the end of 2022. This shrinking pool of labor may make it harder for the Fed to control wage inflation.[viii]

Oil Slip

Before OPEC announced a cut this week, oil prices had fallen by about 40% since their peak in 2022.[ix] This is bad news for energy stocks, which gained more than 60% last year (the S&P 500 fell -18.1%) but have fallen -4.7% year-to-date (the S&P 500 has gained 7.5%).[x] However, it is good news for non-energy companies; three-quarters of CFOs recently indicated their companies’ energy costs had risen since the start of 2022, and only 20% indicated that they’d been able to pass those costs on to consumers.[xi]

Bonus Slowness

The average Wall Street bonus fell 26% last year, the biggest drop since 2008. According to the New York state comptroller’s office, financial employees received average bonus checks of $176,000, compared with a record high $240,000 in 2021. As a result, New York City, in which one in 11 jobs are associated with the financial securities industry, is expected to bring in $208 million less income tax revenue.[xii]

Who’s on the TikTok Sus Bus?

More than twice as many Americans support the U.S. government banning TikTok (50%) as oppose it (22%), though a sizable 28% are not sure. However, older Americans are much more supportive of banning it: 71% of those ages 65 and older support it, compared with only 54% of those ages 50 to 64, 45% of those ages 30-49 and 29% of those under age 30.[xiii]

Animal House

Researchers in Japan studied 66,215 children, 22% of whom had been born into households with pets, and concluded that exposure to dogs or cats reduced the risk of food allergies until the age of 3. Dog exposure reduced the incidence of egg, milk and nut allergies, and cat exposure reduced the incidence of egg, wheat and soybean allergies. Hamsters, unfortunately, increased the incidence of nut allergies.[xiv]

[i] FactSet total returns, as of March 31, 2023.

[ii] Board of Governors of the Federal Reserve System (US), Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity, Quoted on an Investment Basis [DGS2], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DGS2. Accessed April 4, 2023.

[iii] FactSet total returns, as of March 31, 2023.

[iv] MarketWatch, as of April 3, 2023, https://www.marketwatch.com/investing/index/nyfang?countrycode=xx. Accessed April 3, 2023.

[v] The Economist, “Run from Offices,” April 1, 2023.

[vi] Afonso, Gara, Marco Cipriani, Catherine Huang, Abduelwahab Hussein and Gabriele La Spada, “Monetary Policy Transmission and the Size of the Money Market Fund Industry: An Update,” Federal Reserve Bank of New York Liberty Street Economics, April 3, 2023, https://libertystreeteconomics.newyorkfed.org/2023/04/monetary-policy-transmission-and-the-size-of-the-money-market-fund-industry-an-update/. Accessed April 4, 2023.

[vii] U.S. Bureau of Labor Statistics, “Characteristics of Unemployment Insurance Applicants and Benefit Recipients Summary,” March 29, 2023, https://www.bls.gov/news.release/uisup.nr0.htm. Accessed April 3, 2023.

[viii] Amiti, Mary, Sebastian Heise, Giorgio Topa and Julia Wu, “What Has Driven the Labor Force Participation Gap Since February 2020?,” Federal Reserve Bank of New York Liberty Street Economics, March 30, 2023, https://libertystreeteconomics.newyorkfed.org/2023/03/what-has-driven-the-labor-force-participation-gap-since-february-2020/. Accessed April 4, 2023.

[ix] U.S. Energy Information Administration, Cushing, OK Crude Oil Future Contract 1, as of March 28, 2023, https://www.eia.gov/dnav/pet/hist/RCLC1D.htm. Accessed April 3, 2023.

[x] FactSet, total returns as of March 31, 2023. “Energy stocks” as measured by the S&P 500 Energy (Sector) Index.

[xi] Federal Reserve Bank of Richmond, “CFOs Modestly Upgrade Economic Outlook Despite Labor Market, Inflation Concerns,” March 29, 2023, https://www.richmondfed.org/press_room/press_releases/2023/the_cfo_survey_20230329. Accessed April 3, 2023.

[xii] Lukpat, Alyssa, “Wall Street Bonuses Fall Most Since 2008,” The Wall Street Journal, March 30, 2023.

[xiii] Clancy, Laura and Laura Silver, “By More Than Two-to-One, Americans Support U.S. Government Banning TikTok,” Pew Research Center, March 31, 2023, https://www.pewresearch.org/fact-tank/2023/03/31/by-a-more-than-two-to-one-margin-americans-support-us-government-banning-tiktok/. Accessed April 3, 2023.

[xiv] “Associations between fetal or infancy pet exposure and food allergies: The Japan Environment and Children’s Study,” March 29, 2023, https://doi.org/10.1371/journal.pone.0282725. Accessed April 4, 2023.