The stock market recovery from October extended into the first quarter of this year. January was particularly strong and market gains have continued into April after some retrenchment in late March caused by the bankruptcy of two mid-market banks, Signature and Silicon Valley.
Understandably, markets are still focused on Federal Reserve policy. Their efforts to restrain inflation are working well enough in our opinion to lead to a possible “Pause” or even a “Pivot”. The most intrenched inflation had been in the job market where the objective should be to “destroy job openings not jobs.” Decreases in commodity prices, rents, etc aid in making the Fed’s success more likely.
More attention has now turned to earnings trends and the prospect of a recession. We believe that companies have been very adroit at cutting costs, managing through the uncertainty and many have, and will, positively surprise in the quarterly earnings releases, now reported. A noted example are the public home builders, who despite higher mortgage rates, have untapped demand due to shortages of new homes and market share gains from smaller, local builders without access to capital.
