Forty "W"ritings

In April 2020, the U.S. economy exited a short but painful recession due to the COVID lockdown. After four years, the question is where are we in the economic cycle? When can the Fed cut rates?

Last week we finished what turned out to be a stellar quarter for equity investors. The S&P 500 made 22 fresh new record highs in the first quarter alone. The U.S. was not alone in the robust rally.

Last week, central banks responsible for setting policy on six of the ten most-traded currencies met to decide the path forward for nearly half of the global economy.1 The Bank of Japan announced the end to the world’s last negative interest rate regime. The Federal Reserve kept interest rates unchanged as the Committee continues to see an economy that is “performing well.” The Bank of England kept interest rates unchanged but hinted rate cuts could be on the horizon amid inflation falling faster than expected. This week, we review the busy week for monetary policy decisions and what it means for markets going forward.

Last week, President Biden released his $7.3 trillion budget proposal for the fiscal year 2025 which outlined his spending and revenue plans. President Biden aims to reduce the deficit by $3 trillion over the next 10 years and increase spending on programs to assist lower income earners cope with inflation. The budget outlines plans to increase the corporate income tax rate to 28% (from 21%) and establishes a 25% income tax rate for those with wealth of at least $100 million. It is important to understand the process to finalize a government budget of this magnitude, as we are likely months away from seeing any concrete decisions made. In this weekly, we aim to outline the budget process and provide an overview of President Biden’s spending plans (as is) and their potential implications for the economy.

On March 10, 2023, Silicon Valley Bank (SVB) became the second largest bank failure in U.S. history (behind Washington Mutual in 2008). Its collapse crippled the regional banking sector and we quickly witnessed the downfall of two more banks (i.e. Signature Bank two days later and First Republic in May 2023).

Global equity markets surged in February despite hawkish Fed commentary and stubborn inflationary pressures which are calling into question the likelihood of Fed rate cuts.