The Federal Reserve is preparing to step aside from the most aggressive rate hiking cycle in 40 years. Their hawkish policy is beginning to appear overly restrictive in the face of regional bank stress, a recent drop in 2-year Treasury yields below the fed funds rate, and an inverted yield curve. With the disinflationary trend continuing, the Fed will likely take a wait-and-see approach to interest rates after the next, and likely last, 0.25% rate hike in early May.
First quarter bank earnings have been more resilient than some investors had feared, resulting in bank stocks outperforming the broader market in recent weeks. However, U.S. banks have been tightening lending standards in a post Silicon Valley bank world, likely to be a headwind on economic growth.
House Speaker Kevin McCarthy unveiled his initial plan to raise the debt ceiling by $1.5 trillion in exchange for an array of new spending controls. The proposal, titled the Limit, Save, Grow Act of 2023, takes aim at some of President Biden's key agenda items, including scrapping the student loan forgiveness plan and funds earmarked for IRS expansion. McCarthy needs 218 votes from the Republican’s slim 222-seat House majority, assuming Democrats remain unified in opposition.
This week, Q1 earnings season continues with mega-cap tech stocks, including MSFT, GOOG, META, and AMZN. On the economic front, we get an update on the Fed's preferred measure of inflation, Personal Consumption Expenditures (PCE).
BIDEN'S ELECTRIC VEHICLE PUSH - The Environmental Protection Agency (EPA) is preparing to release strict new limits on the sale of gas-powered vehicles. The regulation is reportedly targeting that electric vehicles (EVs) make up 64% to 67% of new car sales by 2032. The regulation is expected to face firm pushback from Republicans and the oil & gas industry. (Source: Associated Press)
NFL DRAFT – The NFL Draft takes place this week between April 27th and 29th. The three-day spectacle is expected to draw 10 million viewers in front of a live crowd of over 300,000 people. (Source: Front Office Sports)
DOLLAR IN REVERSE- The U.S. dollar has declined approximately 10% from its peak six months ago, supporting non-U.S. investments and multinational corporations who derive significant revenue from overseas. Developed international stocks have returned over 11% so far in 2023, outperforming U.S. equities. (Source: YCharts)
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