Weekly Market Report: May 10th, 2024

Markets last week didn’t have too much to absorb thanks to a very light economic calendar and the tail end of Q1 earnings reports. Equity markets continued to rebound from April’s volatility with the S&P 500 climbing 1.85%, a third consecutive week of gains. Developed international markets were also up 1.8% while the emerging markets finished flat despite another up week in China. Despite several Fed speaking engagements decorated by a wide variety of talking points, bond markets didn’t sniff out anything new. Interest rates were relatively flat across the board with the 10yr yield closing the week exactly where it began at 4.5%. Both the USD and commodity complex notched minor gains on the week with the Yen and Real losing ground versus the USD and commodity gains modest but widespread.

Market Anecdotes

• The market consolidation period from the S&P 500 record high set on March 28th through late April has been followed by a healthy rebound.
• FactSet noted Q1 blended S&P 500 earnings growth is at 5.4%, overwhelmingly bolstered by the ‘Mag Seven’ bottom line as evidenced by the fact that removing the top 5 contributors (Microsoft, Nvidia, Meta, Amazon, Alphabet) blended earnings would be -2.4%.
• Eleven Fed speaking engagements last week gave investors a fresh dose of the higher for longer narrative as it pertains to the Fed funds rate and the FOMC objective of reducing inflation back toward its 2% target.
• Fed funds futures are reflecting a consensus of September marking the formal Fed pivot with the likelihood of at least one cut currently priced at 61%. If a cut is delivered in September, it will most certainly be greeted with political handwringing given its proximity to the general election.
• The Fed’s Survey of Loan Officers published last week showed weaker loan demand across the board and continued tightening standards for CRE and C&I loans with particular scrutiny on credit cards.
• The National Association of Realtors noted the combination of high prices and high mortgage rates have taken U.S. home affordability to the lowest on record.
• A Bloomberg article updated what may be one of the most important charts for investors to keep top of mind contrasting the short- and longer-term horizon returns of core asset classes (stocks, bonds, cash) with a clear positive skew growing in lockstep with time horizon.
• With the risk-on cyclical tailwind of 2023 behind us, the lagging healthcare sector as a counter-cyclical with a new contract cycle (pricing power) tailwind over the coming year is taking shape as a potentially interesting fundamental play.
• Global central bank meetings last week included the BoE projecting a more dovish tone than expected and the Riksbank became the second G10 central bank to cut (25 bps to 3.75%).
• One clear consequence of conflict in the Middle East is the re-routing of global shipping traffic. Suez Canal daily ship traffic of less than 30 is down over 50% and volumes are down over 70%. This is mirrored with a commensurate increase in traffic around the Cape of Good Hope.
• A tongue in cheek observation by BCA noted that if the SPR were a hedge fund run by the current U.S. administration, an average oil purchase price of $83 and average selling price of $95, has ‘Biden Capital’ outperforming the WTI Oil index by approximately 7%.

Economic Release Highlights

• The JPM Global Composite PMI (C,M,S) registered (52.4, 50.3, 52.7) respectively, solidly in expansionary territory.
• Weekly jobless claims of 231k increased by 22k and came in above expectations (231k vs 212k), taking the 4-week average 10k higher to 215k.
• May’s UofM Consumer Sentiment Index registered 67.4, well below consensus expectation of 77 and last month’s reading of 77.2.

Weekly Market Report: May 3rd, 2024

Last week markets took in an FOMC meeting, a large dose of Q1 earnings, and a closely watched economic calendar. A soft jobs report and outright rejection of interest rate hikes by Jerome Powell pushed bond yields lower for the week, taking the 10yr UST down to 4.5%. Cooling growth and labor markets seemed to be welcomed by the equity markets where both domestic and international markets managed respectable gains on the week. The U.S was up 0.55% while developed and emerging markets were up 1.2% and 3.2% respectively. Commodities lost ground due to a 6.85% selloff in oil markets and the USD weakened 0.86%.

Market Anecdotes

• The FOMC left the policy rate unchanged and announced a slightly larger than expected curtailment of the QT program, beginning June 1. Notably, Powell refused to acknowledge that hikes may be needed following recent inflation data and a strong ECI wage report.
• While quarterly ECI data was warm, the labor market seems to be cooling with a miss on the headline establishment survey, cooler than expected monthly wage data, slower hiring intentions in survey data, and fewer job openings.
• With 80% of the S&P 500 reported, 1Q earnings reports have taken shape with historically average beat rates and margins of 77% and 7.5%, respectively. Blended earnings and revenue growth are trending at 5% and 4.1%, respectively.
• An interesting note from BCA regarding fundamentals of the technology rally is how positive fundamentals have underpinned the rally with 12mo fwd earnings for IT, Cons Discretionary, and Comm Services up 25.2%, 23.8%, and 34%, respectively since the beginning of 2023.
• While junk bond spreads appear relatively sanguine right now at 3.16% over treasuries, history reminds us that when they turn, they can surge very quickly.
• In the next 12 months, $18 billion of office loans converted into securities will mature—more than double the volume in 2023. Moody’s projects that 73% of loans will be difficult to refinance because of the properties’ income, debt levels, vacancies, and approaching lease expirations.
• WTI oil had its worst week in three months, down 6.85% on easing tensions in the Middle East, a higher for longer Fed, and signs of slowing growth in the U.S.
• The BoJ seems to have intervened in the currency markets a couple of times last week to defend the Yen with intraday price action showing tremendous volatility and the BoJ current account reflecting what were some likely intervention moves.

Economic Release Highlights

• April payrolls grew by less than forecasted (175,000 vs 243,000) and the unemployment rate ticked up from 3.8% to 3.9%. Average hourly earnings came in lower than forecasted for both the MoM (0.2% vs 0.3%) and YoY (3.9% vs 4.0%) readings.
• The Q1 Employment Cost Index came in at 1.2% QoQ, in excess of both consensus (0.9%) and prior quarter (0.9%) rates. ECI registered 4.2% YoY versus 4.3% in the fourth quarter of 2023.
• The March JOLT Survey registered 8.488M job openings, below both the prior month (8.756M) and consensus estimate (8.700M).
• April’s ISM Manufacturing Index came in slightly under forecast (49.2 vs 50.0). The ISM Services Index also missed to the downside (49.4 vs 52.0)
• The Case-Shiller Home Price Index for February came in above consensus for both the MoM (0.6% vs 0.1%) and YoY (7.3% vs 6.7%).
• Consumer Confidence Index registered 97.0 in April, well below consensus forecast of 104.0 and the estimated range of 103-105.6.

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.

Weekly Market Report: April 12th, 2024

A closely watched economic calendar, ample Fedspeak, and ramp in geopolitical tensions made for a volatile week in the markets. A third consecutive warmer than expected CPI print was complemented by eleven Fed speaking engagements offering speculation and soft guidance on the thought process behind U.S. monetary policy. Additionally, the looming Iranian-Israeli conflict was well telegraphed in the media and came to fruition over the weekend. By the end of the week, global equity markets consolidated by 1.5%-2.5% and counter balancing forces of inflation pressures and flight to quality (geopolitical tensions) netted a second consecutive double rise in bond yields. Commodities declined slightly in what has otherwise been a very strong year and the USD rallied on what was likely a geopolitical driven flight to quality bid.

Market Anecdotes

• Bond yields, Fed fund futures, currency markets, and equity markets each notched a reaction to Wednesday’s CPI print, FOMC minutes, and some weak UST auctions with interest rates surging, 2024 Fed rate cuts fading, a strengthening USD, and stock markets consolidating.
• Interestingly, despite all of the noise across equity and bond markets, volatility measures of both have yet to move notably higher.
• With last week’s weak reception of UST auctions and FOMC minutes reflecting interest in slowing the pace of Fed balance sheet runoff, a timely report from Alpine Macro examined the question, “Is fiscal policy driving the treasury selloff?” left us with a definitive answer of “maybe”.
• The most recent J.P. Morgan Duration Survey shows, while duration indications had become very long coming (net 20%) into the year, they’ve fallen back toward neutral today as the bond market trend of November/December has reversed into 2024.
• BCA highlighted the “Mel rule”, a labor market oriented leading recession indicator, similar to the “Sahm rule”, with the exception that the latter has been triggered and the former has not. Their historical accuracy of predicting recession makes them worth a listen.
• First quarter corporate earnings kicked off last week in what will be a closely watched cycle given the inflection points and uncertain path forward with respect to the overall economy (growth/inflation/employment).
• An encouraging indicator of global growth BCA noted last week is the carry trade where investors go long high yielding currencies and short lower yielding currencies.
• The BoC and ECB met last week, both leaving rates unchanged. The ECB did set the table for a June cut, noting Euro area inflation has different dynamics than the U.S. and they’re largely pleased with the trajectory.
• Last weekend’s attack on Israel by Iran in response to an embassy bombing puts geopolitics and oil infrastructure back on the front burner with early indications that cooler heads and diplomacy will be the goal of the U.S. and G7 nations.

Economic Release Highlights

• March YOY headline (3.8 vs 3.7) and core (3.5% vs 3.5%) CPI along with MOM headline (0.4% vs 0.3%) and core (0.4% vs 0.3%) both came in slightly warmer than forecasted.
• March headline PPI (YOY 2.1% vs 2.3% and MOM 0.2% vs 0.3%) registered below expectations while the core readings (YOY 2.4% vs 2.3% and MOM 0.2% vs 0.2%) were warm and in line, respectively.
• UofM Consumer Sentiment in March came in at 77.9, slightly below consensus forecast of 79.0.
• The March NFIB Small Business Optimism Index registered 88.5 versus consensus forecast of 89.9.

Weekly Market Report: April 5th, 2024

With first quarter earnings season on the doorstep, markets took in a full (and healthy) calendar of economic reports last week, several Fed speaking engagements, and a fresh dose of geopolitical risk. Market implications amounted to speculation surrounding the beginning of Fed rate cuts alongside persistently elevated geopolitical anxiety in the Middle East. Global equity markets were mixed with the U.S. and
developed international markets down approximately 1% countered by a rally in China and India to buy emerging markets. Bond yields moved notably higher on the back of strong growth and higher for longer narratives from FOMC members. Commodity markets also rallied on the growth backdrop and oil (+4.5%) received a strong bid thanks to fresh conflict between Iran/Syria and Israel.

Market Anecdotes

• Fed speak last week saw 18 public comments from FOMC members mostly continuing the hawkish narrative we’ve seen steadily over the past few months, most notably clearly hawkish comments from Logan and Bowman in the wake of Friday’s strong jobs report.
• Economic reports and Fed narratives have now taken expected rate cuts in 2024 down to 2.6 with a cut not fully priced into the futures market until September.
• The recent uptick in U.S. inflation data stands in stark contrast to the EU where flash estimates of headline (2.4%) and core (2.9%) inflation are continuing to decline and surprising to the downside.
• First quarter earnings, set to begin next week, are forecasted to grow 3.6% to $54.94. The first quarter saw a smaller than usual downward estimate revisions of 2.5% but both the number and percentage of companies issuing negative guidance increased more than usual.
• Bespoke noted the historically high (bullish) bull/bear spread readings for both AAII and II surveys with the latter in the 99.3rd percentile since 1997, the former in the 84.5th percentile, and the average of the two in the 96.4th percentile – historically a notable contrarian indicator.
• A counter data point to the deteriorating consumer thesis from Bespoke last week was their Consumer Pulse Survey reflecting a record seven consecutive months of a declining share of respondents indicating they Agree or Strongly Agree they are living paycheck to paycheck.
• Rising federal debt has driven net interest costs to 2.77% of GDP with 3.1% expected by year end, a level not seen since peak deficit spending in 1991. The CBO estimates we’ll hit 3.9% by 2034, consuming over 22% of tax revenue.
• Oil prices surged following Iranian/Hezbollah threats of retaliation on Israel for a strike on the Iranian consulate in Damascus. Tight supply dynamics, robust growth, and risks of conflict expanding beyond Gaza pose clear upward pressure on oil prices.

Economic Release Highlights

• March payrolls came in well above consensus (303,000 vs 200,000) with the participation rate increasing 0.2% to 62.7%. The headline unemployment rate fell to 3.8% and average hourly earnings grew 0.3% MoM and 4.1% YoY.
• The February JOLTS report of 8.756M job openings was in line with the spot forecast and essentially unchanged from the prior month.
• The March ISM Services Index was slightly under forecast (51.4 vs 52.7) while the Manufacturing Index beat both the spot forecast (50.3 vs 48.3) and consensus range of 47.5 to 49.5.
• The March JPM PMI Index (C,M,S) registered 52.3, 50.6, 52.5, a slight improvement over February’s 50.3 manufacturing and 52.4 services readings.

Weekly Market Report: March 29th, 2023

Broad equity markets closed higher for the week, month, and quarter in a holiday shortened trading week where the S&P 500 was up 0.40%, 3.43%, and 10.4% respectively. The economic calendar was relatively full but due to markets being closed on Friday, the most watched report (PCE) came after the market closed for the week. Bond yields and currencies were both relatively flat on the week while commodity markets managed a 1.4% gain with WTI oil rallying 3.2% to $83.17 and gold (+2%) marking a new record high of $2,214 per troy ounce.

Market Anecdotes

• The S&P 500 notched a second consecutive quarterly double-digit return, something we haven’t seen since 2012. Of note, never have we seen three consecutive double-digit quarters.
• Equity markets continued to display some of the ‘rotation dynamics’ highlighted recently where 2024 laggards are leading and momentum/growth names are settling in behind. Quarter-end dynamics may be a factor, but a healthy consumer and macro backdrop are certainly helping.
• In terms of policy implications from March FOMC forecast revisions, we’d suggest they paved an easier path forward for themselves with no clear need to deviate from planned policy if growth stays reasonably strong and if core inflation hovers around 2.5%.
• An important distinction between the Fed and markets is that the former sees the long-term neutral rate at 2.56% while the latter at 3.5%, meaning the Fed sees policy as more restrictive than the market longer term.
• Remembering that financial markets and the economy frequently deviate from economic forecasters, including the Fed and most others, particularly over a multi-quarter or multi-year horizon, serves to remind investors the trend is your friend, until it is not.
• The third estimate of U.S. 4Q GDP was revised up from 3.0% to 3.3% and also saw a reduction in core PCE from 2.1% to 2.0% and an acceleration in q/q corporate profits from Q3 3.4% to Q4 4.1%.
• BCA’s note of caution last week was that while the 3mo trailing average unemployment rate, currently 3.76%, has yet to trigger the Sahm Rule, it has triggered in 20 of 50 states and, combined with auto/credit card delinquency rates, dwindling pandemic savings, and softening labor demand, persistently robust consumption may fade over the coming year.

Economic Release Highlights

• The pace of headline (core) PCE inflation in February was generally in line with forecasts, registering 2.5% (2.8%) YoY and 0.3% (0.3%) MoM. Personal Consumption exceeded forecasts (0.8% vs 0.5%) while Personal Income growth of 0.3% was slightly under the 0.4% forecast.
• Consumer Confidence for March registered 104.7, lower than both the spot forecast of 106.7 and forecast range of 105-108.
• The final March UofM Consumer Sentiment Index was revised higher from 76.5 to 79.4 while 1yr (3% to 2.9%) and 5yr (2.9% to 2.8%) inflation expectations ticked lower.
• February’s Durable Goods Orders report showed New Orders (1.4% vs 1.3%), Ex-Transportation (0.5% vs 0.5%), and Core Capital Goods (0.7% vs 0.1%).
• The third estimate of 4Q U.S. GDP was revised higher from 3.2% to 3.4% A/R with Personal Consumption Expenditures increasing from 3.0% to 3.3%.
• China’s CFLP PMI (C,M,S) surprised to the upside in March with readings of 52.7 (50.9 prior), 50.8 (50.2e), 53.0 (51.5e).
•  Case-Shiller Home Price Index showed gains of 6.6% YoY and 0.1% MoM, both within the broad consensus range.
• February New Home Sales of 662k came in slightly under the consensus forecast of 675k. Pending Home Sales increased 1.6% MoM, slightly more than the 1.3% forecast.

Weekly Market Report: March 22nd, 2023

Markets took in a good number of central bank policy meetings and a relatively full economic calendar last week. Both equity and bond markets rallied nicely on what could be categorized as a dovish policy week and a relatively constructive economic calendar. Equity markets in the U.S, Europe, and Japan all marked new record high closes which, because it had been 30 years since the prior Japanese high, hasn’t happened in a long time. Bonds rallied with yields declining across the curve, pushing the 10yr UST bond yield back down near 4.20% while the USD continued its bullish move higher, up 1% on the week and 3% in 2024. Commodity markets were relatively flat with oil hovering around the $80 mark.

Market Anecdotes

• The March FOMC meeting didn’t deliver any surprises and reinforced the Fed has little concern that the inflation trajectory has changed. The dovish narrative was welcomed by the markets who seem fine with a loosening policy bias overall, and rate cuts beginning in June.
• Reading into the Fed’s formal quarterly forecasts, it seems that variability of inflation forecasts appears to be declining, indicating increasing confidence inflation will continue to move toward its 2% target.
• Foreign central bank policy announcements from the BoE, RBA, SNB, and BoJ were squarely in the dovish camp including the BoJ’s decision to end its 8-year experiment with NIRP. Interest rates across broad global bond markets have, in large part, begun to look normal again.
• Strength and resilient economic growth in the U.S. continues to defy forecasters and lead the world with Q1 growth forecasts doubling from 1% to 2% since the beginning of the year and 25 consecutive months of sub-4% unemployment.
• Key contributing factors for dominant U.S. economic growth include very aggressive fiscal policy and elevated spending patterns of the U.S. consumer, averaging a PCE of 69.3% since 2022, well above the pre-CoVid level of 67.6%, and very clearly coming from lower personal savings rates.
•  Recession indicators, the LEI and yield curve inversion, both with long and varying lags, are still flashing caution with the LEI posting a 20th consecutive YoY contraction reading and the 2yr/10yr curve inversion, at 447 days, surpassing the prior record of 445 days from the 1970’s.
• A note from BCA suggested China’s real estate sector contraction is in line for a fourth consecutive year of contraction with home sales, new development, and funding headwinds.
• Both supply and demand forces have bolstered the 13% rally in WTI this year with supply side influences including Ukrainian bombing of Russian refining facilities and OPEC+ continuation of production cuts along with increasing growth forecasts on the demand side.

Economic Release Highlights

• U.S. March PMI readings (C,M,S) at 52.2, 52,5, 51.7 saw the composite and manufacturing surveys exceed consensus but saw the services component miss.
• Non-U.S. March PMI (C,M,S) readings were mixed including the Eurozone (49.9, 45.7, 51.1) and the UK (52.9, 49.9, 53.4).
• February Housing Starts (1.521M v 1.449M) and Permits (1.518M v 1.500M) both registered above their respective spot forecasts.
• February Existing Home Sales exceeded estimates (4.38M vs 3.920M) and the range of 3.85M to 3.95M by a relatively wide margin.
• The March Housing Market Index came in above expectations (51 vs 48) and the forecast range of 46 to 50.

Weekly Market Report: March 15th, 2023

Markets last week took in an economic calendar with additional warmer inflation data points and the associated policy speculation and interest rate volatility. The S&P 500 did mark another record high close (Tuesday) but closed marginally lower on the week (-0.13%, +7.28% YTD) in what was its first back-to-back weekly decline since October. Non-U.S. developed (-0.45%) and emerging (-0.12%) markets both closed slightly lower as well, thanks in part to another week of USD strengthening, at least partially on the “higher for longer” narrative. Bond yields moved notably higher on the week with the 10yr (4.31%) closing back at its February highs. The commodity complex traded broadly higher with WTI oil (+3.88%) and industrial metals both getting solid bids on the week.

Market Anecdotes

• More questions surrounding the progress and trajectory of inflation dynamics surfaced last week with more warm inflation readings (PPI, CPI) which may or may not translate to Fed policy.
• Gradually shifting equity market dynamics over the past month includes cyclical leadership and an increase in stocks trading above their 200-day moving average despite a few of the ‘magnificents’ falling over the same time period.
• Bespoke pointed out that at 517 days, this bull market is sitting exactly at the median bull market duration, but well below the average 1,011 days thanks to the lengthy bull market runs of the past few decades.
• The FOMC and BoJ both meet this week with the former expected to hold but the latter expected to end its negative short term rates and end its seven year yield curve control program.
• With spreads in high yield (315) tightening 133 bps and investment grade (94) by 39bps since their near-term October 2023 highs, it begs the question how much lower can they go? The answer of course depends on the economic outlook.
• A refreshed look at the GDP growth backdrop provides a worthy reminder that falling inflation can paint decelerating nominal GDP growth with a brush of accelerating real GDP growth.
• Bianco Research pulled one from the vault by revisiting the internet bubble tech sector rise and fall as a history lesson possibly pertaining to the current AI craze. The rise in the market has translated to a self fulfilling rise in bullish sentiment and equity market inflows.

Economic Release Highlights

• February YOY headline and core CPI registered (3.2% vs 3.1%) and (3.8% v 3.7%) respectively with MOM readings of (0.4% v 0.4%) and (0.4% v 0.3%).
• February YOY headline (1.6% v 1.2%) and core (2%) PPI along with MOM readings of (0.6% v 0.3%) came in well ahead of expectations.
• Retails Sales in February were generally in line with consensus on the headline (0.6% v 0.7%), Ex-Vehicles (0.4% v 0.4%), and Ex-Vehicles & Gas (0.3% v 0.2%) readings.
• February Industrial Production of 0.1% was in line with the 0% spot forecast and consensus range of -0.5% to 0.2%. Manufacturing Output beat on the upside (0.8% v 0%).
• UofM Consumer Sentiment in March registered 76.5, generally in line with the 77.3 spot forecast and range of 75 to 78.3

Weekly Market Report: March 8th, 2023

Last week markets absorbed a good deal of Fed speak and an economic calendar which lent itself marginally to a higher for longer (firm growth backdrop) narrative. U.S. equity markets exhibited some breadth with the S&P 500, despite marking a new record high, ending the week down 0.26% while most sub-mega cap stocks posted marginal gains. Developed (+1.6%) and emerging (+0.84%) equity markets were both up nicely for the week thanks in part to a weakening USD which gave back 1.11% against a basket of currencies, particularly the Yen. U.S. bond yields declined mostly on the long end pushing the 10yr yields back down below 4.1%. Commodities were mixed with WTI oil down 2.45% to $78 but industrial metals rallied 1%-5% across the board.

Market Anecdotes

• U.S. equity markets powered by a more sanguine view on interest rates, resilient growth, and the mega cap/ AI craze have bounced a remarkable 26% off the late October 2023 lows, perhaps a bit short term overbought, but a strong tape is a strong tape as they say.
• A look at 2024 forecasted revenue and earnings growth of 5% and 11% respectively suggests the street may still be a bit optimistic given growth expectations and potential earnings headwinds.
• Earnings and performance of the companies within the ‘Mag 7’ have seen some dispersion recently which may carry some interesting translations to both active manager performance and market index considerations.
• The ‘strong tape’ is stronger nowhere more so than the AI fueled semiconductor industry where Bespoke noted 80 consecutive SOX closes at least 3% above its 50-dma, a first ever close above the headline S&P 500 index, but still some very wide dispersion within the index.
• A look back provides an important reminder of how equity markets, despite some unsettling volatility with 10 ‘ups’ and 10 ‘downs’, can ultimately generate a nice outcome. Similarly, a Bespoke look at credit spreads and subsequent equity market returns reminds us to be greedy when others are fearful.
• Powell testimony noted policy moves including taking the fed funds from 0% to 5.25% and QT which has reduced the Fed balance sheet from $8.5t to $7.1t have helped bring PCE inflation down to 2.4% (headline) and 2.8% (core) but they remain data dependent on the path forward.
• Central bank news saw the ECB keep their policy rates unchanged last week while rumors of the BoJ considering an end to its NIRP ( -0.10%) sent some volatility into global bond and currency markets. Higher wages and cooling inflation may give the BoJ room to end the extreme policy.

Economic Release Highlights

• February payrolls handily beat expectations (275k vs 190k) and the unemployment rate rose from 3.7% to 3.9%. Labor market participation stayed at 62.5% and average hourly earnings was broadly in line with consensus of 4.3% YOY (0.1% MOM).
• January JOLTS reported a slight decline in job openings to 8.863M.
• U.S. February ISM Services Index (52.6 vs 53.0) was generally in line with the consensus forecast.
• The JPM Global Manufacturing PMI improved from 50.0 to 50.3 in February while final non-U.S. PMI (C, S) readings were Eurozone (49.2, 50.2), China (52.5, 52.5), U.K. (53.0, 53.8).

Weekly Market Report: March 1st, 2023

Markets closed out the month of February with the equity markets in the U.S. (+1%) and developed international (+0.78%) posting solid gains. The impressive run in the U.S. large cap space has enabled the S&P 500 to close higher in 16 of the past 18 weeks, something we haven’t seen in over 50 years. Economic data carried a softening tone last week which allowed bonds to rally. Slightly softer U.S. growth data helped Treasuries rally last week taking 10yr yields back down below 4.2% and the USD slightly down on the week. WTI crude oil closed up 2.5% to $79.97, touching the $80 level briefly for the first time since November.

Market Anecdotes

• A strong start to 2024 with back to back monthly gains despite the hawkish repricing of Fed policy expectations has been notable with consistently favorable financial conditions, resilient growth, and solid earnings from big technology companies leading the way.
• Markets have priced roughly half of the rate cuts projected at the beginning of the year and are now relatively in line with the FOMC dot plot with the first cut (54% probability) expected in June.
• A strong labor market, the healthy consumer, and strong productivity growth have contributed to the constructive outlook while disinflation seems to be losing a little steam.
• A big rally in Chinese stocks feels more like a policy-driven rebound due to several measures intended to prop up the market while macro data has remained lackluster and industrial metals have yet to catch a bid, suggesting patience may be in order.

Economic Release Highlights

• The pace of headline (core) PCE inflation declined slightly in January and was in line with forecasts, registering 2.4% (2.8%) YOY and 0.3% (0.4%) MOM. Personal Consumption of 0.2% was in line but Personal Income growth of 1.0% was well above the 0.4% forecast.
•  U.S. ISM Manufacturing Index slipped from 49.1 to 47.8 in February, missing the consensus forecast of 49.5.
• January Durable Goods Orders declined 6.1%, slightly more than the -4.5% forecast. Also reported were Ex- Transportation (-0.3% v 0.2%) and Core Capital Goods (0.1% v 0.1%).
• Consumer Confidence in February (106.7 v 115.0) missed and registered below the consensus range.
• 4Q U.S. GDP was revised down from 3.3% to 3.2% but Personal Consumption Expenditures were revised up from 2.8% to 3.0%.
• New Home Sales of 661k registered slightly below the consensus forecast of 685k. Pending Home Sales declined 4.9% versus consensus forecast of 0.8% and a range of -2.5% to 4.6%.