Tucker Financial Weekly Market Review: April 26th, 2024

Weekly Market Report: April 26th, 2024

Corporate earnings, discounting market rate cut expectations, and a full economic calendar were the key drivers in the market last week with a stagflation GDP narrative countered by healthy consumer spending and inflation dynamics. By week’s end, the S&P 500 (+2.7%) and NASDAQ (+4.2%) both closed with healthy gains, snapping their three- and four-week losing streaks, respectively. Healthy earnings reports from several big technology companies helped equity market sentiment. Bond yields edged slightly higher across the curve last week with the 10yr UST yield closing at 4.67% while the USD and commodity markets were relatively flat.

Market Anecdotes

• Markets continued to calibrate rate cut expectations last week with warm inflation numbers, a slower than expected GDP report, and some deteriorating U.S. PMIs adding to the conversation.
• Strong personal consumption and private investment in Q1 helped offset a seemingly disappointing GDP report which was dragged down by net exports, government spending, and private inventories.
•  Employment data within the PMI survey show slowing demand for labor, particularly across service sectors.
• The BOJ held steady last week following a move to hike rates for the first time in 20yrs. The Yen has weakened by 10% YTD (vs USD) and touched a 34-year low last week. A key driver behind the Yen is interest rate differentials which are influenced directly by Fed policy expectations.
• Some momentum behind Chinese equities has brought YTD returns nearly in line with global averages. Key drivers include what were very compelling valuations, touching a 12yr low of 8x, and some equity market oriented central policies designed to foster confidence.
• We’re at the midpoint of the U.S. earnings season with top- and bottom-line blended growth of 4% and 3.5%, respectively, with beat rates (77%) and beat margins (8.4%) generally in line with historical averages.
• Bank earnings reports have revealed that the NII (net interest income) and NIM (net interest margin) party of 2023, which benefited from rising rates and garnered significant flight to quality deposits (SVB) is winding down.
• U.S. government debt of $28t totals just over 100% of GDP with an average duration of 6-7 years and a healthy 30% reliance on foreign buyers/holders which is well below the 40% level we saw 5 years ago. For reference, outstanding Japanese government debt stands at 255% of GDP but the savings rate is 39% versus a mere 3.5% in the US.

Economic Release Highlights

• Headline (core) PCE inflation in March came in slightly above YOY forecasts, (2.8% vs. 2.7%) and in line with MOM forecasts (0.3% vs. 0.3%). Personal Consumption again exceeded forecast (0.8% vs 0.6%) while Personal Income growth of 0.5% was in line.
• First quarter U.S. GDP of 1.6% was well under consensus forecast of 2.3% and below the bottom end of the forecast range of 1.7%-2.8%.
• April U.S. PMI (C,M,S) of (50.9,49.9,50.9) saw both services and manufacturing come in under their respective spot forecasts.
• Global PMIs (C,M,S) in April for the Eurozone (51.4,45.6,52.9), UK (54.0,48.7,54.9), and Japan (52.6,49.9,54.1) reflected continued economic expansion overseas.
• Durable Goods Orders in March grew 2.6%, higher than the forecast of 2.3%. Ex-Transportation (0.2% vs 0.3%) and Core Capital Goods (0.2% vs 0.2%) were generally in line.
• The final UofM Consumer Sentiment index was revised lower from 77.9 to 77.2 and one-year inflation expectation ticked 0.1% higher to 3.2%.
• New Home Sales in March registered 693K, ahead of the spot consensus 670k and above the high end of the 625k-685k range. Pending Home Sales grew 3.4% MoM, well ahead of the 1% consensus expectation.