US Economy On The Edges As Banks Continue To Fail And The Fed Raising Interest Rates

The S&P 500 logged a weekly gain following the release of encouraging inflation data and a weaker-than-expected first-quarter economic growth report amid the banking woes.

On Friday, the Bureau of Economic Analysis reported the personal consumption expenditures price index increased by 4.2% year-over-year in the month of March, down from 5% in February. Core PCE, which excludes volatile food and energy prices and is the Fed’s preferred inflation gauge, was up 4.6%, above analyst estimates of a 4.5% gain.

On Thursday, the Bureau of Economic Analysis reported U.S. GDP grew 1.1% year-over-year in the first quarter, far below the 2% growth economists predicted. GDP growth slowed from 2.6% in the fourth quarter and 2.1% full-year growth in 2022.

“Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go,” Federal Reserve Chair Jerome Powell said in a statement.

Powell hinted that the interest rate hike may pause due to the increase in problems with the banking system. 

On Monday, First Republic Bank reported its deposits dropped nearly 41% in the first quarter, sending the stock tumbling nearly 50%. With shares down more than 95% year-to-date, investors are concerned First Republic may be the next bank to collapse in the ongoing U.S. regional banking crisis that brought down Silicon Valley Bank, Signature Bank and Silvergate in March.

Silicon Valley Bank was purchased from First Citizens Bank. The North Carolina based bank has had a history of purchasing failed banks in the past.

First Republic Bank was purchased by JPMorgan Chase as the bank failed to maintain unsecured deposits as seven of the big banks deposited $30 billion for its rescue efforts. 

Shares of Bed, Bath & Beyond Inc. dropped to around 10 cents on Friday following the company’s Chapter 11 bankruptcy protection filing last Sunday. Bed, Bath & Beyond announced on Tuesday that it received a notice from NASDAQ that its common stock will be delisted from the exchange and trading will be suspended on May 3.

“It becomes less and less warranted to continue pursuing policies that theoretically bring down inflation but at expense of the labor market,” said Lindsay Owens, executive director of the Groundwork Collaborative, a progressive think tank in Washington, D.C. “It’s not the case that we have to keep hammering away.”

Meta Platforms Inc. shares jumped Thursday after the Facebook and Instagram parent company reported its first positive revenue growth in four quarters and exceeded expectations with its second-quarter guidance.

Shares of popular restaurant chain Chipotle Mexican Grill also gained nearly 14% on the week after the company reported first-quarter earnings and revenue numbers that beat analyst expectations.

In the week ahead, investors will get more quarterly reports from Ford Motor, Uber Technologies and Advanced Micro Devices on Tuesday and Apple on Thursday.

S&P 500 net profit margins are on track to decline for the seventh consecutive quarter, according to FactSet.

Following the March PCE inflation data, Wall Street will get more economic updates on Wednesday when the Federal Reserve releases its latest interest rate decision and related commentary and on Friday when the Labor Department releases its April U.S. jobs report.

Produced in association with Benzinga