Hi and welcome to PIGM Weekly Market Commentary from May 2, 2022. I'm Rich Tavis from the Strategic Investment Research Group or SIRG. SIRG is a part of PIGM, the asset management division of Prudential Financial. 

So far this year, rising interest rates and fear that the Fed will push the U.S. economy into a recession have weighed on markets. The S&P 500 finished April down 8.7%, the worst month since March of 2020, and down 12.9% year to date, the worst start to a year since World War Two. 

After a strong start to the week last week, the S&P 500 finished down 3.3%, led lower by consumer discretionary stocks after disappointing guidance from Apple and Amazon on Friday. The 10-year treasury yield was little changed for the week, finishing at 2.89% with performance for the broad investment grade bond market flat. Riskier high yield debt was down about 1%. 

In terms of economic data, U.S. GDP came in weaker than expected for Q1 declining by 1.4% versus expectations for a 1.1% gain. However, the weak headline number masked strong underlying demand. Consumption and business investment actually accelerated. The weakness was driven by a surge in imports as shipping congestion eased, a pullback in government spending, and a drag from inventories which many had anticipated after an inventory rebuild helped boost Q4 growth. 

With respect to inflation core PCE, the Fed preferred measure, was up 29 basis points in March, unchanged from February - perhaps a sign that inflationary pressures are peaking. However, the year over year change of 5.2% remains well ahead of the Fed's comfort zone. 

Also, the Employment Cost Index increased on a quarter-over-quarter basis, exceeding expectations. Overall, signs that demand remains strong in Q1 coupled with ongoing wage pressures suggests that the Fed is still on track to hike rates by 50 basis points at this week's FOMC meeting. 

In other data, pending home sales fell in March, the fifth straight monthly decline, a sign that the housing market may be cooling as rising prices and surging mortgage rates impact affordability. 

Turning overseas eurozone GDP growth of just 20 basis points in Q1 combined with high headline inflation continued to fuel stagflation concerns putting more pressure on the European Central Bank to act. However, earlier in the week, ECB President Lagarde had been cleared to point out differences between the inflation picture in Europe versus the U.S. 

In Europe, high headline inflation is being driven by reliance on Russian oil and gas, but with core inflation lower and weaker growth prospects, a less aggressive path of tightening may be warranted. 

More aggressive expectations for rate hikes in the U.S. have been fueling the strong relative performance of the dollar in recent weeks, which has increasingly become a factor on investor radar as a headwind for the U.S. economy. 

On a positive note, optimism increased that China would step up support for its economy following a statement by their politburo on Friday. 

On the earnings front, big tech was in focus with some of the big names reporting. Overall results were mixed, starting off the week a bit better than feared. However, Friday saw disappointing guidance, first from Apple, which noted headwinds from ongoing supply disruptions and Amazon, which posted its first loss since 2015 due to weakness in online shopping and rising costs. 

Turning to this week, all eyes will be on Wednesday's FOMC meeting. While the Fed is widely expected to hike rates by 50 basis points, investors will be looking to see one; whether or not they bless market expectations for another 50-basis point hike in June, how they respond to questions about the potential for a 75-basis point hike at an upcoming meeting. And finally, the formal announcement for balance sheet runoff. 

In terms of key economic releases, the April jobs report will be in focus, where expectations are for an increase in nonfarm payrolls of 390,000. 

Also on tap are RISM purchasing managers indices for April, the JOLTS report for March, which will provide more color on dynamics in a very tight labor market, and monetary policy meetings in Australia and the U.K. 

Have a great week and we'll speak again next Monday.