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Markets Remain Unsettled Amidst Economic Uncertainties

Capital Markets Perspective brings you what to watch in the markets this week, published in partnership with Great-West Investments.

Week in Review

April 9-April 17

Ahh, relief…(maybe?)

A gallon of regular gasoline now costs around $4.09, about 23 cents less than it did in the weeks immediately following Russia’s invasion of Ukraine[1]. That amounts to a drop of around 5% from the all-time record of $4.32, set in mid-March.

Indeed, the idea that Vladimir Putin’s influence over US gasoline prices might have already peaked featured prominently in last week’s mid-month update of consumer sentiment from the University of Michigan, which surprised everyone when it reported that consumers’ view the economy’s prospects had jumped more than 10% during the first two weeks of April[2]. While consumers continued to acknowledge strength in the jobs market, rising wages, and <…yawn…> other stuff that they would ordinarily care about, the per-gallon price of go-juice is what they seemed to be most focused on.

Maybe that’s not terribly surprising given that Americans spend around 9.5% of their retail spending budgets at the gas station (a figure that has recently run a little higher than that given the spike in gas prices.[3]) But it still seems a little premature for consumers to cheer quite so enthusiastically when you consider that the typical weekly variation for gas prices is around +/-2% under ordinary circumstances anyway[4].

More to the point, the survey period of the UofM’s survey just happened to correspond to a lull in crude oil prices that in turn might have been related to the Biden administration’s April Fool’s Day announcement that it would begin releasing a million barrels per day from the Strategic Petroleum Reserve as soon as May[5]. Not coincidentally, during the period between Biden’s SPR release announcement on April 1st and the period when the UofM’s survey period ended on April 12, oil prices averaged just under $99 per barrel; that compares to an average of around $108 during March, so the relief in oil prices was tangible, whatever its cause.

Of course, gasoline prices don’t follow crude oil prices in lockstep, but consumers who respond to surveys like the UofM follow headlines about gasoline and crude oil prices in as close to real-time as CNN and Fox News will allow. That leaves little doubt that at least some of last week’s improvement in consumer sentiment was related to optimism – warranted or not – surrounding gasoline and crude oil prices. But also not coincidentally, oil prices have since re-accelerated and are now back near the $108 level that prevailed through March – meaning that whatever relief consumers might have been feeling might also prove to be short-lived – especially if the violence in Ukraine continues or intensifies.

We’ll have a better idea about how durable the improvement last week’s consumer sentiment might be in a few weeks when the UofM releases its final read. And for what its worth, the professors who compile the survey (who tend to be kind of a dour group, if you ask me…) weren’t really all that moved by the improvement, pointing out that last week’s figure still leaves sentiment closer to recessionary levels than to boom times and that there are plenty of things (Putin’s war among them,) that could derail those gains[6]. So we’ll have to wait and see, I guess (but if you ask a professor at the UofM, the best you’re likely to get is a frustrated grumble.)

Much like those grumpy professors (but quite unlike their suddenly more upbeat consumer study-subjects,) small business owners are still in a funk. According to the national Federation of Independent Businesses, the number of small business owners who expect the US economy to improve in the next six months fell to its lowest level in history (and this from a survey that spans nearly a half-century of data collection![7]) That reflects the same list of old problems (labor availability, a lack of skilled workers) and a continuation of relatively new ones (supply chain stress and inflation) that have yet to relent, at least when seen through the eyes of small businesses. Moreover, the forces behind inflation aren’t really going away: 72% of small businesses are raising prices (another all-time record) and up to half expect to boost them again in the next three months. Little surprise, then, that “inflation” surpassed labor quality as the number-one concern for small businesses in March.

That exact sentiment – that prices may have to go still higher before things finally cool down – also featured prominently in another business-focused survey we got last week: the Atlanta Fed’s business inflation expectations survey[8]. According to that data, businesses are saying that inflation is likely to continue to rise at survey-topping rates for at least the next 12 months, led by both labor- and non-labor costs. But a relatively new entrant into the “this is why inflation is rising” derby is the need to defend profit margins: according to the Atlanta Fed’s data, more businesses cite that influence as a significant contributor to inflation than at any other time during the 10-year history of the project.

…Which brings us to our last point in this week’s review: earnings. As we’ve written before, profit growth has to remain strong if markets and the economy are to remain healthy. As usual, big financial companies were first out of the gate with first quarter earnings from the likes of Citigroup, JPMorgan, Goldman Sachs, Morgan Stanley and a handful of others at the end of last week. Results have so far been mixed: a few beat expectations easily while others stumbled. One consistent theme, though, seemed to be that banks are setting aside bigger chunks of capital to cover losses that might result from economic uncertainties like Ukraine-related difficulties, COVID-related shutdowns in China and/or a more general economic slowdown at some point in the future. Whether or not that turns out to be prescient or simply prudent might say a lot about what happens to the economy from here.

What to Watch This Week

April 18–23

Notable economic events (April 18– 22)

Monday: NAHB builder sentiment; Earnings: BAC, JBHT

Tuesday: Housing starts/permits; Earnings: NFLX, IBM, HAL, PLD

Wednesday: Existing home sales, EIA inventories, beige book; Earnings: TSLA, CSZ, UAL, SAVE, CVNA

Thursday: Weekly jobless claims, Philly Fed, Leading Economic Indicators; Earnings: AAL, PM, UNP, FCX, AN

Friday: Flash PMIs; Earnings: SLB, KMB

So here’s where we seem to be at from an economic perspective: prices, inflation and business sentiment seem to be in sort of a “GOAT-y” mood (and not in a good way, either, with many of the “greatest-of-all-time” readings showing up on the wrong side of the dial…) Meanwhile, the potential list of external shocks keeps growing, from lingering COVID risk, to Ukraine, and now the possibility of a sudden economic slowdown in China (which, not coincidentally, is in its own way at least partially related to both of those first stressors.) Good thing we’ve got earnings to shed some light this week.

It’s always seemed to me that banks are in a unique position among businesses who report their earnings publicly because they stand at the intersection between the “real” and the “financial” economies. That gives them a broader perspective than other, more focused businesses and enables them to set the tone each earnings season, which they did last week by reporting mixed earnings and, in many cases, suddenly beginning to rebuild rainy-day reserves against future losses that they only recently started to drain as COVID started to recede.

But this week, the focus shifts away from banks and toward companies that do “real stuff” for a living, including a number of firms that are front-and-center of some of those same macro-relevant trends mentioned above. Let’s start with logistics – a fancy term that, among other things, mostly describes the movement of goods to market. It’s hard to imagine a sector better-placed to comment on how stressed supply chains still are than trucking companies (JB Hunt reports on Monday,) while rail operators CSX and Union-Pacific are scheduled to report at mid-week. Several pundits have noted that pricing and volumes for the nation’s trucking business is starting to moderate, making these reports fertile ground for macro read-through given the particulars of today’s environment.

And then there’s energy. If the world is ultimately able to navigate the ongoing disruption caused by Russia’s invasion of Ukraine, it will probably be because of a partial re-shuffling of the energy production landscape. Energy services providers Halliburton (Tuesday) and Schlumberger (Friday) might have something interesting to share about how that is progressing. (Ditto for metals: resource firm Freeport-McMoRan reports on Thursday.)

We also get the first “glamor growth” companies (nee “FANNGS,”) in the form of Netflix (Tuesday) and Tesla (Wednesday. BTW, I realize Tesla wasn’t officially a “FANNG”, but it’s always occupied that same real estate in my own brain given its valuation and growth profile, not to mention its success in capturing the popular imagination). And finally, under the category of “nobody used to care very much”, we’ll get auto retailers AutoNation and Carvana – two firms that are in a great position to provide color around used car pricing – one of the first (and most extreme) examples of post-pandemic inflation that has yet to fully resolve in spite of softer prices in recent weeks.

So the bottom line is that there are plenty of earnings reports to keep us interested this week. Good thing, too, because there aren’t really too many economic releases on the docket. Most will be focused on housing and real estate, including NAHB builder sentiment on Tuesday, housing starts and permits – together with existing home sales – on Wednesday. As mentioned last week, housing is suddenly becoming a little more interesting as mortgage rates rise and prices hold firm, which has already begun to show up in transactions data. Eventually, that could cool housing markets further, which could have macroeconomic impacts in a broader sense. That means these kinds of releases probably deserve more attention than we’ve been willing to give them in recent months.

Beyond that, we’ll get several PMI-type releases, including flash (read: “preliminary”) results from S&P/Markit Economics PMIs on Friday, as well as the Philadelphia Fed’s monthly report on the health of the manufacturing sector in their region on Thursday. As has been true for a while now, the big question around PMIs and like-minded data such as the regional Fed manufacturing reports is when they might soften enough to dip below the 50-yard line separating growth from contraction. We’re still comfortably in the “growth” zone, and Friday’s Empire State manufacturing report – an intellectual sibling to this week’s Philly Fed – rebounded in a big way. We’ll have to wait and see whether that theme repeats this week with the Markit PMIs and the Philly Fed.

Finally, Wednesday’s Beige Book will continue the recent tradition of over-thinking anything and everything published by the Fed. The Beige Book – which is really just a collection of economic anecdotes collected by the Fed’s 12 regional districts – gives a good read-through into how some of the broader trends captured by national data is impacting things on a regional level. Look to Wednesday’s release for clues into how deeply things like inflation, supply chain stress and labor market tightness are impacting growth at the regional level, as well as any hints about how that might influence the path of rates and balance sheet normalization in the near future.

In closing, markets have remained a little less settled than we’ve perhaps become used to. As we transition away from COVID as the driving beat underneath markets and the economy, we’ve been handed a whole new set of stresses, ranging from inflation, to Ukraine, to China, and beyond. That list seems more likely to grow than to shrink, which suggests to me that things could stay unsettled for a while.

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Personal Capital Advisors Corporation (“PCAC”) is a wholly owned subsidiary of Personal Capital Corporation (“PCC”), an Empower company. PCC and Empower Holdings, LLC are wholly owned subsidiaries of Great-West Lifeco Inc. Source for index data:; GWI calculations.


[1] US regular gasoline (all formulations), weekly retail price per gallon, US Energy Information Administration, St. Louis Federal Reserve


[3], GWI calculations

[4] Standard deviation of weekly gasoline prices, 1991-2022 (calculations: Great-West Investments)


[6] Ibid

[7] .


Thomas Nun, CFA, is a portfolio strategist for Great-West Investments.
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