Equity and fixed income markets traded marginally higher this week as improving inflation and better-than-expected corporate earnings buoyed investors. The S&P 500 Index rose 0.89% but was overshadowed by the strength in growth stocks, with the NASDAQ Composite advancing 1.28%. The Dow Jones Industrial Average was higher by 0.86%. The Bloomberg US Aggregate Bond Index also rose 0.83%.1 Three key economic data points were released this week.

The core Personal Consumption Expenditures Price (PCE) Index, the Fed’s preferred measurement of inflation, increased 0.3% in March and 4.6% year on year, the Commerce Department reported on Friday. Wall Street had been expecting readings of 0.3% and 4.5%, respectively. Including the volatile food and energy components, headline inflation increased 0.1% month on month and 4.2% year on year. The inflationary pressures reflected the willingness of consumers to keep spending.2

While the PCE report showed continued improvement, another key inflation measure, the Employment Cost Index (ECI) ‒ a quarterly survey measuring changes in total employee compensation ‒ may cause the Fed some concern. The ECI increased 1.2% for the first quarter, higher than the 1% estimate, and remains at an elevated 4.9% year on year. This adds to worries that the Fed may view this wage inflation data point negatively and keep interest rates higher for longer to quell inflationary pressures.3

Growth in the U.S. slowed considerably during the first three months of the year as interest rate increases and inflation took hold of an economy largely expected to decelerate even further in the months ahead. Gross domestic product, a measure of all goods and services produced for the period, rose at a 1.1% annualized pace in the first quarter, the Commerce Department reported Thursday. Economists surveyed by Dow Jones had been expecting growth of 2%.  The growth rate followed a fourth quarter in which GDP climbed 2.6%.4

At the mid-point of the Q1/23 corporate earnings season, S&P 500 companies are recording their best performance relative to analyst expectations since Q4/21. Both the number of companies reporting positive EPS surprises and the magnitude of these earnings surprises are above their 10-year averages. The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings decline for the first quarter is -3.7% today, compared to a decline of -6.7% at the end of the first quarter.5 Positive earnings surprises reported by companies in multiple sectors (led by the Consumer Discretionary, Information Technology, Financials, Communication Services, and Industrials) have been the largest contributors to the decrease in the overall earnings decline for the Index.

If -3.7% is the actual decline for the quarter, it will mark the second straight quarter in which the Index has reported a decrease in earnings, a sign that the economy may be experiencing an earnings recession.



  1. Morningstar Direct
  2. https://www.cnbc.com/2023/04/28/key-inflation-gauge-for-the-fed-rose-0point3percent-in-march-as-expected.html
  3. https://www.bls.gov/news.release/pdf/eci.pdf
  4. https://www.cnbc.com/2023/04/27/gdp-q1-2023-.html
  5. https://insight.factset.com/sp-500-earnings-season-update-april-28-2023

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Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.

GDP Decelerating Sharply, and An Earnings Recession Is Upon Us | Sequoia Financial Group


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