Market Commentary — May 8, 2023

As expected the Fed increased interest rates another 25 bps last week, taking the target range from 5-5.25%. While Fed Chair Jerome Powell’s hinted that rates may be near the peak level for the cycle (a pause), a Fed pivot to cutting rates might not occur as soon as investors hoped. Uneasiness surrounding the need to raise the U.S. debt ceiling may also have weighed on sentiment, as U.S. Treasury Secretary Janet Yellen notified congressional leaders in a letter that the agency might not be able to meet its debt obligations “potentially as early as June 1.”

The tech sector fared the best last week on continued strong earnings, while energy stocks pulled back along with WTI crude prices. Treasury yields fell early in the week on concerns about regional banks and the debt ceiling but moderated on Friday when the jobs report came out.

Jobs data showed the number of job openings shrank for the third consecutive month, especially for small businesses. Still, with 1.6 job openings for every unemployed person, the job market remains pretty tight. What is interesting is the market rallied on the strong jobs report, suggesting that recession has now trumped inflation as the market’s primary concern.

JP Morgan Chase assumed most of the assets of California-based Republic Bank including its strong asset management business. Looking for the best screen for bank stocks in the current environment? The XOUT Index and ETF that tracks it uses deposit growth as a signal of disruption. It has been extremely effective as a signal in the current environment, X-ing OUT the bank laggards. Happy to share this research and will likely be writing about it somewhere soon as the results are pretty amazing based on the YTD quintile spreads.

In ETF news, ETF flows in April suggested investors are remaining cautious, with U.S.-listed ETFs attracting $29.3 billion, down 34% from their 5-year average. Equity ETFs, saw inflows slump even further, off 44% below the 5-year average. Fixed income flows on the other hand attracted $5.6 billion with high yield in particular staging a major “bounce back” in flows. Government bonds also saw inflows in April, as investors are utilizing a barbell approach.

In new ETF news, Breakwave Advisors and ETFMG launched the Breakwave Tanker Shipping ETF (BWET), which provides “long exposure to the crude oil tanker shipping market through a portfolio of near-dated futures contracts on indices that measure the cost of shipping crude oil.” And Touchstone launched an actively managed Climate Transition ETF (HEAT).

Finally, there was a mystery filing for 22 thematic (I counted) copycat strategies under the Themes ETF brand.

Have a great week and get Mom something nice for Mother’s Day coming up on May 14th!

Jane Edmondson
CEO and Co-Founder

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