Tucker Financial Weekly Market Review: May 17th, 2024

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.