*I appeared on the TD Ameritrade Network this week and you can see the clip HERE.
The week started with First Republic Bank being carved up by the FDIC with a bulk of the assets being purchased by JP Morgan. Powell in his presser on Wednesday tried to pass off that the banking system is “resillent” but the chart below shows deposits are continuing to leave banks as the return on T-Bills at 5%+ is too attractive to ignore. Over a trillion in deposits have left the banks since last summer and the exodus accelerated in March which caused banks like First Republic to fold.


The additional quarter point hike will motivate depositors to move their cash to money market accounts so expect more banks having issues in the coming months. The jobs data on Friday (more below) was strong and that means the Fed has more room to keep hiking rates in theory. In reality, they should take a break and wait for the lagged effects of the rate increases over the last year to ensure they are not creating more harm than good.
The Stock Market
The S&P has been trading in the same price range for nearly five weeks as it hovers below major resistance at $418 on the SPY ETF in the chart below. Eventually, the price action will reveal a clear trend or pattern but for now we are in a see-saw until we see a breakout above the August high at $431 or a breakdown below the October low of $350. Until then it is a waiting game but the market always shows its hand…eventually.

The Yield Curve
About as funky as it gets for a yield curve. We saw close to 5.5% on the front month T-Bill this week and if you notice the 30Yr is creeping to its highest levels in three months. The long-end is trading to negative yields if you factor in inflation (Core PCE) of 4.5% and this low rate has helped in debt issuance for those that can get funded. If the long-end comes unhinged then banks will get hammered on their long-dated commercial real estate holdings even more. Stay tuned.

Economic Data
- US Consumer Credit came in at $26.514B (Forecast $17B, Previous $15.29B) which reflects an unexpected large increase in credit card balances.

- Nonfarm Payrolls for April grew by 253k, about 65k above the estimate but offset by a downward revision of 149k over the two prior months. Hours worked remained at 34.4 as expected but that matches the lowest since April 2020 and it was at that same level of 34.4 in February 2020. Of note and an historically leading indicator of job growth, temp jobs were shed for a 3rd straight month and in the 5th month in the past 6. (WSJ)
- The job-force participation rate held at 62.6% and remains below the 63.3% seen in February 2020. Notable is the rate for 25-54 yr olds rose to 83.3% from 83.1% which is the highest since January 2007.

- U.S. factory activity contracted for the sixth straight month in April, the latest sign of slowing demand for manufactured goods. The Institute for Supply Management’s manufacturing index came in at 47.1 for April which is an improvement over March’s 46.3 but still below the 50-mark that separates contraction from expansion. The decline in new orders is a concern for growth in the remainder of 2023.
- Contrary to manufacturing, the ISM Services showed a reading over 50 (expansion) and increased 0.7 pts to 51.9. However, this reading is lower than what we saw in January and February which was 55. According to the ISM, “The majority of respondents are mostly positive about business conditions; however, some respondents are wary of potential headwinds associated with inflation and an economic slowdown.”
- April auto sales totaled 15.91mm, above the estimate of 15.1mm and that is up from 14.3mm in April 2022. Wards said “Higher interest rates, elevated prices and fear of recession undoubtedly are pushing some consumers out of the market, but pent-up demand (especially from fleets), increased availability and an economy still seeing job growth and wage increases are offsetting the headwinds.
- Job openings in March shrunk for a 3rd straight month to 9.59mm. That’s the least since April 2021 as the economy was then reopening.

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Paul J McCarthy III CFA
President, Kisco Capital