Market Commentary 05/16/23

Strong Consumer Spending Offsets Weak Housing & Business Investment

The U.S. economy grew at a 1.1% annual rate in the first quarter of 2023, marking a decline from the 2.6% growth rate in the fourth quarter of 2022.* It was the third consecutive quarter of growth, after a short recession. However, this was the second consecutive quarter where the rate of growth slowed compared to the prior quarter. Looking at the numbers, data show there are pockets of strength in the U.S. economy, such as strong consumer spending on goods and services and increased government spending. However, other areas remain challenging, such as single-family housing and business spending on computers, equipment, and restocking inventories.

As a result, the quarterly GDP report provided mixed signals to investors. Slower growth may indicate the Federal Reserve’s plan to raise interest rates is working. The central bank’s goal is to slow the economy enough to ease inflation without tipping the U.S. into a recession. As we have outlined in our commentaries, the right balance for the Fed has been challenging. However, a 1.1% growth rate could be a step in the right direction. Conversely, consumer spending remains resilient, and unemployment remains near historic lows, even with higher interest rates, which suggests the Fed’s plan might not be working quickly enough. Now, the Fed must decide whether it should continue to raise interest rates or pause and assess the situation. The decision is tricky, because it usually takes time for higher interest rates to affect the economy.

Looking at the headlines, inflation dropped to a 5% annualized pace in March, home sales rose during the spring months, and oil prices are significantly below their peak from last June. Yet, the path forward may be challenging and volatile. While investors remain concerned about the impact of higher interest rates on the economy and banking system, there remains the matter of Congress debating over the debt ceiling and government spending. As always, we will do our best to keep you informed.

Have a good remainder of the week,

Dennis P. Barba, Jr.
CEO & Managing Partner

Michael P. Finkelstein, CFA


Important Disclosures: The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The information contained herein is based on technical and/or fundamental market analysis and may be based on data obtained from recognizable statistical services, issuer reports or communications or other sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to its accuracy or completeness. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request. CAR-0523-02110

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