Market Indexes:

The failure of First Republic Bank over the weekend kicked off a volatile week of trading as we awaited yet another rate hike by the Federal Reserve. However, the market didn’t digest the First Republic news until Tuesday as we saw markets down over -1.5%, with bonds and gold rallying to finish the day up over +1%. The Fed raised rates by a .25% on Wednesday as expected but did not indicate what June would bring. They remain data dependent and adamant about getting inflation down to 2%, but since they’ve started this rate hike path at such a swift pace, we’ve now seen three U.S. banks fail. Asset wise, that is $200 billion more in assets than all the banks that failed during 2008. The nonfarm payrolls job number on Friday came in higher than expected. There are some areas of weakness, but the job market remains rather strong which makes the Fed’s job much harder. Apple Inc. announced earnings on Thursday which beat expectations on both earnings and revenue, but are showing signs of slowing. This would be their second consecutive quarter of declining sales, but the $90 billion dollar stock buyback and dividend increase was exactly what investors wanted to hear. Apple finished up almost $8 on the day to $173.


U.S. Manufacturing ISM Increased To 47.1, But Remains Contractionary. Prices Paid Tick Higher

  • U.S. April ISM Manufacturing increased slightly to 47.1, versus 46.3 . . . but remains in contractionary territory.
    • This is the 6th straight month of the headline number being in contractionary territory
  • Conversely, April Market PMI decelerated slightly to 50.2, versus 50.4 in March
  • U.S. March Construction Spending expanded by 0.3% M/M (slightly better than consensus)
  • On a Y/Y basis construction spending came in at +3.8%, which is a slowing from the full Q1 number of +4.3%
  • With 265 / 500 SP500 companies having reported . . . revenue is up +4.4% Y/Y and earnings is -0.1% Y/Y
    • On the earnings side, energy is leading the way at +28% Y/Y


JOLTS Job Openings Slows Again. Redbook Weekly Retail Sales New Low of +1.3% Y/Y

  • JOLTS job openings for March slowed to 9.59MM, which is the lowest level since April 2021
  • That said, JOLTS is still running at about 30% above long-term averages and pre-pandemic levels
  • After the slight acceleration last week, Redbook Weekly Retail Sales slowed again to 1.3% Y/Y, which is a post pandemic low
    • This data series started the year at ~+10% Y/Y and has trended consistently lower as the year has progressed.
  • March U.S. Factory Orders were up +0.9% M/M to $539BN, which followed two consecutive M/M decreases -> came in at +3.7% Y/Y
  • But . . . excluding transports (aircraft orders primarily), factory orders were down -0.9% M/M and slowed to +1.9% Y/Y


ADP Employment Much Stronger Than Expected At +296K. ISM Services Expands

  • Strong ADP employment report this morning coming in at +296K for April
  • This was well above consensus of +145K and an acceleration from March at +142K
  • The services economy continues to outperform manufacturing with April U.S. Services PMI coming in basically flat with March at 53.6 (versus Manufacturing being contractionary)
  • Similarly, ISM Services continued to be expansionary accelerating in April to 51.9, versus 51.2 in March.
    • Prices paid remained flat, though very elevated at 70
    • Goods producing sectors added +67K jobs and service producing sectors added +229K
      • Within the goods producing component, manufacturing shrunk by -38K jobs
  • MBA Mortgage Purchase Applications fell -1.2% W/W and remain down -32% Y/Y
  • The 30-year fixed rate of 6.5% is 114bps higher than a year ago.


U.S. Labor Market Remains Tight. Q1 Unit Labor Costs Accelerate To +6.3% Y/Y

  • The U.S. Labor market continues to give air to monetary policy hawks:
    • April Challenger Job Cuts ticked down from the prior month to 67K, versus 90K in March
  • Initial Jobless Claims did tick up bit W/W to 242K, but generally remained near historical lows
  • Meanwhile, Continuing Claims actually decelerated to 1.80MM, from 1.84MM in the prior week
  • In other news, Q1 unit labor costs blew away consensus expectations coming in at +6.3% Y/Y -> Q4 2022 level was +3.3% Y/Y
    • This is a re-acceleration as the prior four quarters unit labor costs were up +5.8% Y/Y in aggregate
    • For context, this is the highest level of Y/Y increase in unit labor costs since the early 1980s
  • Conversely, Q1 Productivity disappointment to the downside coming in at -2.7% M/M and slowed to -0.9% Y/Y
    • This is the first time since 1948 (the starting date of the BLS) that productivity has been negative for five straight quarters


April Nonfarm Payrolls came in above expectations

  • Non-Farm payrolls increased by 253k, beatings expectations at 180k
    • February and March jobs numbers were downwardly revised by 150k
      • Job growth is showing signs of slowing over the past few months
  • The unemployment rate was 3.4% against an estimate for 3.6% and tied for the lowest level since 1969.
  • Average hourly earnings rose 0.5% for the month and increased 4.4% from a year ago, both higher than expected.
  • These numbers put pressure on the Fed to keep tightening on and potentially another rate hike


Franco-Nevada (FNV) announced earnings on May 2nd of $276.3 million in revenue, down 18.4% from Q1 2022 primarily due to production disruptions at two of their mines and lower oil and gas prices. As of March 31st, they have $0 in debt and $2.2 billion in available capital. They generated $209.8 million in operating cash flow from the quarter and announced their 16th consecutive dividend increase. Their quarterly dividend totals $.34/share or 1% annual yield.

Apple Inc. (AAPL) announced earnings on May 4th and beat analysts’ expectations on both top and bottom. Earnings were unchanged YoY and sales were down -3% for the same period, marking two straight quarters of sales decline. AAPL did announce a $90 million stock buyback and a 4% raise of their dividend to $.24/share or 0.5% annual yield. The biggest company in the world proved that while people are still buying hardware and services, demand is slowing.

Lancaster Colony Corporation (LANC) also announced earnings on May 4th, missing analysts estimates by $.04 but grew by 139% from Q1 2022. Revenue growth of 15.2% was above expectation while margins were lower. Pricing increased by 11.3% even as they continue to experience significant cost inflation, but LANC has managed to offset the higher input costs by managing their manufacturing costs. This led them to a $25.9 million increase in gross profit. LANC pays a 1.6% annual dividend.

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