Weekly Macro Minute

GuideStone Reflections

Dear friends, do not believe every spirit, but test the spirits to see if they are from God, because many false prophets have gone out into the world.

1 John 4:1, CSB

When John wrote this letter, the early church was enduring an onslaught of heresies, intent on derailing the young faith and distorting the Gospel. Two thousand years later, not much has changed. False teaching is always a threat to the church at any time or place. That’s why John urges us to “test the spirits.” He could be talking about literal spirits – demonic spirits driving messengers claiming to be from God – but more likely, he's using “spirits” figuratively, referring to the people themselves.

In verses 2 through 6, he gives us three questions to ask to determine if the “spirit” is true or false. The first question is, “Do they confess that Jesus Christ came in the flesh (v. 2-3)?” Jesus is a popular figure, and everybody has ideas about who He is. But is their Jesus the right one? In other words, do they believe that Jesus is the divine son of God who took on humanity, or just a wise and good man? If it’s the latter, they’re a false spirit.

The next question is, “Are they popular with the world (v. 5)?” In this case, “world” refers to the sinful culture-at-large, and verse five tells us that a false spirit will be well-received by it. People like an easy message, something the Gospel is not. Yes, it speaks of God’s grace and love, but it also warns of sin and judgment. While there have been godly men and women who were well-regarded by their culture, these cases tend to be the exception, not the rule. If the culture readily embraces a message of Jesus but shows no repentance, then maybe that messenger wasn’t teaching the true Jesus.

Finally, the third question is, “Do they listen to the Apostles (v. 6)?” When John first wrote this, Christians had only various collections of Apostolic writings. But now we have a completed body of Scripture. The Christian faith is not something that has to be rediscovered or reinterpreted time and again. Rather, we simply hand down what the Apostles first gave us. “Spirits” who don’t listen to the voice of Scripture are not from God.

In a rapidly changing world with ubiquitous media, many “spirits” scream for our attention. Are we testing them?

Across the Markets

Globally, stocks ended broadly lower for the week, despite a strong surge in risk assets on Friday (with technology stocks, once again, acting as one of the only areas of relative strength). Market participants had quite a lot to digest last week, including a Fed meeting, debt ceiling debates, key data releases and additional volatility emanating from the regional bank sector. U.S. Treasury Secretary Janet Yellen notified Congress that the government might be unable to meet its obligations “potentially as early as June 1,” bringing a renewed focus on this element of uncertainty.

In banking news, the FDIC took control of First Republic Bank on April 30 and allowed JPMorgan Chase to acquire most of the failed bank’s assets at what most would agree were sweetheart terms. Those who believed the worst of this current episode of banking-induced volatility was over were proven wrong by First Republic transaction and as names in the space got taken for a wild ride last week amidst growing concern about the health of regional banks.

U.S. Treasury 10-year yields fell in tandem with banking concerns and ended the week at 3.44%. WTI oil continued its downward march to close at just over $71/bbl (having crested over $83/bbl less than one month ago).

European shares were modestly lower on the week as the European Central Bank raised its key deposit rate by 25 basis points. ECB President Christine Lagarde reiterated the rate-setting body’s stance that they would be willing to continue to hike rates until inflation was on a path to their 2% target (which followed a 7% year-over-year inflation print for the eurozone for April). The Bank of England is also widely expected to make a final 25-basis point hike this coming week.

Japan’s markets logged a positive return but were only open for two trading days as the country celebrated a national holiday. Markets in China were closed most of the week for a holiday, with the country’s equity markets putting up mixed results. Encouragingly, domestic tourism around this holiday was back to pre-pandemic levels, and spending activity surged 129% year-over-year.

In the Economy

All eyes were on the Fed this week as rates were hiked as anticipated by another 25 basis points, bringing the benchmark fed funds rate to a target range of 5.00% to 5.25%. The statement from the FOMC omitted the previous language about anticipating “that some additional policy firming may be appropriate.” Many investors labeled this a “dovish hike” and expect this hike to be the final in this series (i.e., the pause everyone has been waiting for). While we’d agree with that as a base case, as typical, Chairman Powell expressed openness to adapt to evolving economic conditions in gauging the necessity of further rate hikes and clearly stated, “a decision to pause was not made today.” Fed fund futures are currently pricing in an approximately 92% chance that the Fed will keep rates on hold at the June meeting.

The Labor Department released data showing that the number of job openings shrank for a third consecutive month in March. Despite this drop, there are still 1.6 jobs for every unemployed person. The same report also estimated layoffs to be at 1.8 million, an increase of 248,000 and the highest level since December. Lastly, the week also brought the non-farm payrolls report, which showed continued strength in the labor market. The economy added 253,000 new jobs in April (above the consensus estimate of 179,000). The report also showed average hourly earnings to have increased at a 0.5% month-over-month pace, and the unemployment rate fell to 3.4% to match a 54-year low.