Economic Data and Market Highlights
Global equity markets declined again as the MSCI ACWI fell 2.9%. The S&P 500 fell 3.04% with it’s year-to-date return of just 4.58% as of Friday’s close. Geopolitical fears increased as Iran has started to exchange fire with Israel. Fears that the Israel/Hamas war expanding sent Brent Crude to over $90 a barrel. Traded added to shares in Consumer Staples and Utilities, the only two sectors in the S&P 500 that performed positively, up 1.55% and 1.87% respectively.
Chip stocks got hit hard this week with Nvidia’s losses equaling more than AMD’s entire market value at $258B compared to AMD’s $235.3B. Furthermore, the Magnificent Seven accounted for around $934B in losses this week making it the group’s worst weekly loss of market value. The second largest losses for the group were seen in January 2022 when it shed $872B. Taiwan Semiconductor Manufacturing Co. reported first quarter earnings Thursday and the company cut its forecasts for overall market growth over the next year, excluding memory chips, to 10%, which is down from more than 10% three months ago. The downgrade was reported to be mostly due to automotive chips. They didn’t elaborate on the reason but it’s most likely is due to slowing growth in chip-intensive electric vehicles. On a positive note, the company did maintain growth for its own revenue, growing at 20% this year.
Tesla moved to layoff 10% of its workforce which shocked many employees. On Monday Tesla announced it would be laying off around 14,000 workers globally. Tesla has been one of the worst performers in the S&P 500 so far this year with shares falling over 40% on a YTD basis due to cooling demand in Q1 which was 386,783 vehicles delivered, which was well under prior estimates of 457,000.
As we have written in past weeks’, updates about vacancy rates and declining values in office space, banks that have lent to that space have increased the size of their loan loss reserves over the past few quarters with the median reserves for office loans at approximately 8%. For context, in the fourth quarter, across all banks and all loans reserves sat under 2% per Fed data. During PNC’s latest report, management noted that values for some offices have fallen 30%-40%. Reserves for the bank stood at 9.7% of office loans. US Bancorp commercial real estate nonperforming loans rose from 1.45% in the 4th quarter to 1.71% primarily driven by office properties. Bank of America recorded 16 office loan charge-offs in the first quarter and four being results of sale activity. Higher-for-longer rates will likely place additional stress on a building owner’s ability to refinance and subsequently banks may have to add more to reserves for losses. For context, however, that while charge-offs have increased, it should be noted that rate is nowhere close to levels of 2008 at this point.
The Past Week’s notable US data points
Data Source: Blackrock, Bloomberg, Charles Schwab, CNBC, Goldman Sachs, J.P. Morgan, Morningstar, Morgan Stanley, Standard & Poor’s, and the Wall Street Journal.
Authors:
Jon Chesshire, Managing Director, Head of Research
Michael McNamara, Analyst
Sam Morris, Analyst