The second quarter of 2023 begins with an interesting look back at the first quarter: substantially weakened numbers for US manufacturing activity, including employment, in the second half of the first quarter and a newly revised Atlanta Fed GDPNow estimate of first quarter economic growth at 1.7%, down from estimates of more than 3%. Last week, the Dow gained 3.2%, the S&P 500 rose 3.5% and the Nasdaq advanced 3.4%, while the Stoxx Europe 600 rose 5.1%. The U.S. 10-year Treasury yield increased 10bps to 3.48%. In March, the S&P 500 rose 3.7% on multiple expansion and a modest increase in EPS. Data released last week showed that the core Personal Consumption Expenditures index — the Fed’s preferred measure of inflation — softened in February. Investors are pricing in a better than even chance of a 25bps rise at the central bank’s next meeting in May. On the wealth planning front, the Washington Supreme Court upheld a 2021 law last month that instituted a personal capital gains tax at the state level. Washington’s new 7% capital gains tax applies to the sale or exchange of long-term capital assets such as stocks, bonds, and business interests. Given the success in Washington, there is now a precedent that could encourage other states to create new tax laws targeting wealthy individuals.
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