Weekly Market Report: May 17th, 2024

Markets took in a busy economic calendar last week with several readings on inflation and the consumer. There were also a large number of Fed speaking engagements which provided ample opportunity for Fed members to opine on macro trends. The week saw U.S. equity markets notch fresh record highs while a big rally in China (+5.6%) and India (+4%) pushed emerging markets up 3% on the week. Equity markets got an assist from falling bond yields which have fallen nearly 30 bps since late April, leaving 10yr UST yields at 4.42%. Commodities were up 1.7% on the week thanks in part to a healthy rally across both industrial metals and energy. The energy complex saw WTI oil close back up over $80 and natural gas was up 16.6% on the week.

Market Anecdotes

  • The S&P 500, now up 11.4% on the year, chalked up a fourth consecutive week of gains and took out the late-March record high last week while the VIX hit a 9-year low.
  • Second quarter GDP is currently modeled by the Atlanta Fed at 3.6% supported by personal consumption expenditure growth of 3.6% and domestic investment growth of 5.6%.
  • The three-month average unemployment rate moved up to 3.87% in April, 0.37% over the early 2023 low of 3.5%, technically triggering the Sahm Rule recession indicator.
  • A research note from BCA highlighted a potential scenario where a light recession compresses market valuations from 20x to 16x and we see a 10% decline in operating earnings which would be consistent with a 30% decline in the S&P 500 to 3,700.
  • Tight investment grade and high yield credit spreads are continuing to provide an “all-clear” indication with regard to implied credit risk in the market and seem to be shrugging off signs of a deteriorating labor market.
  • In a week with several disappointing economic data releases, The PBoC announced a $42b property market rescue package designed to absorb excess housing inventory, relaxing mortgage rules, and lowering down payment requirements for homebuyers.
  • Fourteen Fed speaking engagements, including Powell, gave markets ample talking points which amounted to a strong higher for longer narrative. Powell acknowledged the lack of progress on inflation in the first quarter and the possibility of a rate hike, albeit less likely than a cut.
  • A far too early observation on the upcoming U.S. general election is that both POTUS candidates share two market unfriendly campaign threads – a pointed nationalist/protectionist narrative and absolutely no discussion of addressing the massive federal budget deficit spending.

Economic Release Highlights

  • April YoY headline and core CPI readings of 3.4% and 3.6% and MoM readings of 0.3% were softer than expected and lower than March readings across the board.
  • Headline and core PPI registered 2.2% and 2.4% YoY respectively, with warmer than expected MoM readings (0.5% vs 0.3%) and (0.5% vs 0.2%).
  • The NFIB Survey improved from 88.5 to 89.7 in April but the trend this year has been down.
  • The Conference Board LEI returned to a contractionary reading (-0.6% vs -0.3%) after only one month in the plus column over the past two years.
  • Industrial Production in April slowed down from March levels and came in under consensus forecast on both Headline (0.0% vs 0.1%) and Manufacturing Output (-0.3% vs 0.3%) readings.
  • Retail Sales in April cooled notably relative to March and came in below consensus (0.0% vs 0.4%) while the Control Group unexpectedly declined by 0.3%.
  • A reading of 45 for April’s Housing Market Index was below consensus forecast and the March reading, both of which were 51.
  • Housing Starts (1.360M vs 1.435M) and Permits (1.440M vs 1.480M) both came in under consensus forecast.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
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