Impressing US corporate earnings

North American equity markets finished April like the previous month higher despite the turmoil in the US regional banking and the risk of recession stemming from continuous hawkish US Central Bank. S&P 500 added 1.43% in April while Nasdaq was little changed. Canada’s S&P/TSX Composite advanced 2.56% in that period.

The first quarter earnings came better than expected from tech giants including Amazon and Meta to Energy companies like Exxon Mobil, outweighing concerns of inflation and economic recession. JPMorgan’s announcement of taking over of the troubled First Republic bank took one concern off the markets checklist.

The US Federal Reserve will hold its policy meeting on Wednesday to decide on what is believed to be the last interest rate increase of the year. Markets expected the Fed to increase the policy rate by 0.25% to 5.25 and then keep it there for an extended period. The fed futures curve which is based on the contracts in the markets is, however, implying that rates will come down by year-end; a move that is against the motivation of the central bank officials.

Canada fell behind the US and held the rate at 4.5% to not jeopardize the housing market’s stability, a move that pushed the Canadian dollar lower against the greenback. April housing market prices show the prices are picking up, which may push the BoC to consider hiking again, especially if the US decides to introduce even higher rates in 2023.

Meanwhile, the markets are embracing the risk of recession with most hedge funds shifting away from economic-sensitive sectors like banks to more defensive positions.