Market Perspective for April 3, 2022

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.

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