Holiday Week Still Delivers Market Impact

Holiday Week Still Delivers Market Impact

This week was shortened due to Good Friday, Passover, and Easter holiday closures. Markets closed early at 2 PM on Thursday and remained closed Friday. Despite the shorter trading window, there were still several market-moving data releases, with Retail Sales on Wednesday taking center stage. A number of Federal Reserve (Fed) officials also shared commentary that influenced market sentiment.

March Retail Sales: Headline Strong, Core Weak

Retail Sales are closely watched because they are one of the main indicators the National Bureau of Economic Research (NBER) uses to determine whether the economy is in a recession. For March, Retail Sales came in stronger than expected at +1.4%.

Markets had anticipated strength as consumers likely pulled forward spending in anticipation of price increases related to tariffs. This was especially apparent in autos and auto parts, which surged +5.3% month-over-month. However, if you remove the auto component, Retail Sales rose +0.5%. A high volume of imported goods was sold, again likely to avoid anticipated price hikes.

More telling, Core Retail Sales (which feed directly into GDP calculations) rose only +0.4%, missing expectations of +0.6%. This suggests underlying demand may be weaker, and that we may see softer retail figures in coming months as much of March’s activity may have been pulled forward.

Atlanta Fed GDP: Still in Negative Territory

The Atlanta Fed’s GDPNow estimate for Q1 2025 was updated this week to -2.2% (or -0.1% when factoring in gold import/export activity). While this is slightly better than last week’s -2.4%/-0.3% forecast, it’s still a very weak GDP projection and consistent with signs of economic slowing.

Fed Leadership Highlights Inflation Focus

Fed Chair Jerome Powell reiterated that the central bank’s current priority remains on controlling inflation, despite the Fed’s dual mandate of price stability and full employment. His comments offered a contrast to those made recently by Chicago Fed President Austan Goolsbee, who has emphasized a broader view of the mandate.

Powell also noted that the Federal Reserve is not tasked with supporting the stock market, though the Fed’s stance could shift if broader economic conditions warrant reconsideration.

Treasury Auction: Foreign Buyers Still Interested

The 20-year U.S. Treasury auction this week received average demand, but a notable outcome was the larger-than-average foreign participation. Despite global trade tensions, foreign investors continue to see value in U.S. debt for the time being.

Housing Starts Fall Amid Supply-Demand Imbalance

We also received updates from the housing market:

• New Home Permits were issued
• Housing Starts (homes under construction) fell from 1.494 million to 1.324 million

For context, household formation has averaged 1.8 million annually over the past five years. This gap between new supply and new demand may continue to support home values in the near future.

Looking Ahead: Key Reports Next Week

• Monday: Leading Economic Indicators (LEI)
• Wednesday: New Home Sales, Crude Oil Inventories
• Thursday: Existing Home Sales, Natural Gas Inventories
• Friday: University of Michigan Consumer Sentiment