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Last Thursday, the Dow Jones Industrial Average dropped 550 points to end the worst quarter in two years. There was no major news to account for the 1.56 percent loss. It was most likely institutional investors that were repositioning for the second quarter.

The final tally for the first quarter includes the DJIA losing 4.6 percent and the S&P 500 dropping 4.9 percent. The NASDAQ did even worse, closing down 9 percent for the first quarter. For the NASDAQ, this is the worst quarter since 2020, at the start of the Covid-19 pandemic.

Contributing to the market’s problems are the continuing high inflation, the Federal Reserve raising rates, and the Russian invasion of Ukraine. Even though the first quarter was negative, March saw the markets finish higher for the month. The Dow rose 2.2 percent, and the NASDAQ and S&P 500 gained more than 3 percent.

Among the sectors hardest hit on Thursday were the tech hardware and semiconductor stocks, with AMD dropping more than 8 percent after analysts at Barclays downgraded AMD from overweight to equal weight. Other stocks with big losses included Dell, losing 7.6 percent, and HP, down 6.5 percent for the day.

The major market indexes finished the week mixed, with the DOW down just 0.1 percent, the S&P 500 up 0.1 percent, and the NASDAQ ended the week up 0.7 percent.

On Friday, the jobs report showed that the country added 431,000 jobs during March, which was below the estimated 490,000. The unemployment rate declined to 3.6 percent. For the first quarter, 1.7 million jobs were added, and there are still 1.8 jobs for every unemployed person.

The survey of households showed that the total employment level is within 408,000 of where it stood before the pandemic. As expected, average hourly earnings increased 0.4 percent for the month. On a 12-month basis, wages increased 5.6 percent, which is in line with expectations.

On Thursday, the core personal consumption expenditures price index (PCE) was released, showing an increase of 5.4 percent from the same period in 2021. The Federal Reserve views the PCE as the key gauge for inflation. The 5.4 percent increase is the biggest jump since April 1983.

Including the more volatile food and energy prices, the PCE rose 6.4 percent, the fastest pace since January 1982. Rising consumer prices had an impact on consumer spending, which rose just 0.2 percent for the month, compared to an expected 0.5 percent increase. With the attention on surging prices, services inflation was relatively flat with an increase of 0.3 percent.

With the 10-year Treasury notes climbing, mortgage rates are also inching higher. Mortgage application volume dropped 6.8 percent last week compared to the previous week. As of April 2, the average rate for a 30-year fixed mortgage is 4.90 percent, up 98 basis points from a month ago.

The average for a 15-year fixed rate is now at 4.22 percent, up 0.97 percent from a month ago. Mortgage refinance applications dropped 15 percent last week and are down 60 percent from a year ago.

As for oil prices, President Biden announced last week that he will release 1 million barrels per day from the Strategic Petroleum Reserve for the next six months. Releasing this much oil for this length of time from the reserves is an unprecedented move.

President Biden went on to criticize the oil industry for sitting on 9,000 already approved but unused oil permits for production. After this announcement, the benchmark Brent crude dropped 4.88 percent to close on Wednesday at $107.91.

Oil continued to drop, with Brent crude finishing the week at $104.39 and West Texas Intermediate closing at $99.42, after starting the week at $111.37. According to AAA, the national average for regular gas stood at $4.20.

The markets continued to watch two situations, one being the ongoing Russian invasion of Ukraine and the other the Federal Reserve. The situation in Ukraine continues to be a focal point for the market, and there has been no further progress to a peaceful solution.

The major market indexes were positive for a second straight week. The S&P 500 and NASDAQ gained approximately 2 percent, while the DJIA rose 0.3 percent. All three are still negative for the year. The Chicago Board of Options Volatility Index dropped again to close the week at 20.81.

Federal Reserve Chairman Jerome Powell said that they are prepared to act more aggressively when it comes to withdrawing support for the economy to bring soaring inflation under control. He indicated the Fed could soon push rates at relatively high levels in order to slow demand and temper inflation, which is now moving at its fastest pace since the early 1980s. These comments are the most direct statements yet that the Federal Reserve is ready to act more forcefully to attack inflation.

As far as the Federal Reserve is concerned, it is all about fighting inflation at this point. The Fed funds futures are now moving higher for May and June. They are currently predicting a 73 percent chance of a 50-basis point increase in May and a 63 percent chance of another 50 basis point increase in June. July is still pricing in a 25-basis point increase.

Still, some economists had differing views, believing the Fed can raise rates all they want, but until the supply chain is fixed, it won’t do any good curbing inflation. If demand remains high and the supply chain is still lagging, prices will continue to climb. In addition to supply chain issues, the labor shortage continues to slow the supply chain. Businesses continue to report that they are having problems hiring enough workers.

The continuing war in Ukraine and sanctions on Russia are also having a secondary effect on the global supply chain. Taking Russia and Ukraine out of the global markets could have significant impacts on energy, rare earth minerals and wheat. Wheat could affect global food supplies, and raw minerals could add to the current shortage of semiconductors.

On a positive note, the U.S. economy is still growing at its most rapid pace in decades. On Thursday, March 24, the initial jobless claims fell to the lowest level since 1969, with a decrease of 28,000 to 187,000 initial claims. This figure was well below the estimate of 210,000 initial claims. Chairman Powell described this labor market as being tight to an unhealthy level. There are millions of job openings currently along with historically low unemployment levels. Employers are having a hard time attracting new employees and keeping current ones.

Bond prices continued to drop sharply. Yields on the 10-year U.S. Treasury bond jumped to 2.49 percent to close the week to a level not seen since May 2019. The year-to-date increase on the 10-year is 98 basis points. The 2-year U.S. Treasury bond closed the week at 2.30 percent, an increase of 157 basis points YTD. This is being watched closely as some are predicting an inverted yield curve, which could predict a recession.

After dropping the previous week, oil prices increased again about 10 percent for the week, closing Friday at $113 per barrel.

As we head into the April earnings season, the outlook is a little gloomy as many companies are lowering their expectations. Last week, more than twice as many companies lowered their earnings guidance than had raised them. According to FactSet, 66 companies cut expectations, while 29 raised them.

Reflecting higher interest rates, mortgage rates neared 5 percent, closing at 4.95 percent Friday for a 30-year fixed mortgage. The last time the 30-year mortgage topped 5 percent was in 2011. Friday’s close is 164 basis points (1.64 percent) higher than a year ago.

Rents are also increasing at a record rate, causing potential homebuyers to be unable to save enough money for a down payment. At the same time, lenders are becoming stricter about how much debt they will allow borrowers to take on in relation to their income. As we head into the spring homebuying season, the inventory of homes continues to be low. With mortgage rates and home prices continuing to rise, the median mortgage payment is now more than 20 percent higher than it was a year ago.

The National Association of Realtors is now predicting rates will stay near 4.5 percent, an increase of 50 basis points from their previous prediction. They also expect home sales to drop 3 percent this year. This expectation could decline further as some are predicting sales to fall by as much as 8 percent this year.