Welcome to my latest video presentation. The article below is a transcript edited for concision; my video contains additional details and several charts.

After hiking rates last week for the 10th consecutive time, the Federal Reserve hinted it would probably pause in June. But in the meantime, we’re starting to feel the harsh economic effects of tightening. Will the pause come too late?

In the span of about a year, the central bank has hiked rates by more than 5.0%. Fed Chair Jerome Powell intimated at his press conference last Wednesday that a “pause” may be in the offing at the next meeting in June of the Federal Open Market Committee (FOMC).

A pause is what Wall Street wants. However, the recessionary consequences of tightening already are in the pipeline. Higher rates exert lagging effects, and in its zeal to contain inflation, the Fed may have tightened too far for too long.

The real economy is taking a hit. Witness the turmoil in the banking system, with multiple regional bank failures. At the same time, lending conditions are getting tougher, manufacturing activity is weakening, and the housing sector is slumping.

Senior loan officers are reporting tougher credit standards. The more the Fed increases the interest rate, the tougher it is to get credit. Businesses and consumers will increasingly pull back; they already are.

Odds of a recession have increased, although it’s likely to be mild at worst. The labor market has remained surprisingly resilient, which should help keep the economy from a severe downturn.

In the meantime, the main U.S. and overseas indices finished last week lower, except for the tech-heavy NASDAQ, which managed to eke out a slight gain.

Powell did not explicitly say that the Fed was poised to pause rates, but some of the language in the Fed statement suggested (ever so faintly) that a pause may be in store for next month.

The FOMC statement deleted the pre-existing phrase, “some additional policy firming may be appropriate,” and swapped it with language that it would assess incoming data to determine “the extent to which” additional tightening would be appropriate.

Fed watchers are akin to Kremlinologists; they parse “Fed speak” for every nuance. The interpretation here is that the Fed no longer assumes that further rate increases are appropriate.

Nonetheless, the additional 0.25% hike, combined with downbeat economic data and Powell’s hawkish dismissal of any rate cut this year, took their toll on stocks. So did further banking uncertainty, as failed First Republic Bank got gobbled up by JPMorgan Chase (NYSE: JPM) and other troubled banks came under scrutiny.

The swoon in stocks would have been worse, if not for better-than-expected corporate earnings. For Q1 2023, the blended earnings decline for the S&P 500 is -2.2%. That’s a big improvement from previous estimates. On March 31, the estimated earnings decline for Q1 2023 was -6.7%.

For Q1 2023, with 85% of S&P 500 companies reporting actual results, 79% of S&P 500
companies have reported a positive earnings surprise and 75% have reported a positive revenue surprise.

Apple (NSDQ: AAPL) gave the overall market a jolt of adrenaline last week. The company beat analysts’ expectations on the top and bottom lines for its fiscal second quarter. Revenue was $94.8 billion versus $92.6 billion expected; adjusted earnings per share came in at $1.52 vs $1.43 expected; and iPhone sales reached $51.3 billion vs $48.9 billion expected.

Apple continues to dominate the smartphone market, reaping an estimated 82% of operating profit share from the global market in the first quarter of 2023.

The Cupertino giant is considered an economic bellwether. The company didn’t provide full-year guidance, a practice that started with the pandemic in 2020. However, its fiscal Q2 report card, released after the closing bell Thursday, helped spark a sharp equity rally on Friday.

In the coming days, here are the scheduled economic reports with market-moving potential:

Wholesale inventories (Monday); consumer price index (Wednesday); producer price index and initial jobless claims (Thursday); consumer sentiment (Friday). The inflation data will be the biggest news, of course.

We’ve enjoyed a healthy rally so far this year, albeit dominated by a handful of large-cap leaders. Volatility is likely to increase and the bear market is still with us. But as the year progresses, opportunities will emerge as more bullish conditions take hold.

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John Persinos is the editorial director of Investing Daily.

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This article originally appeared on Investing Daily.