What’s Up In The Market

Week Ending April 26, 2024

Weekly Market Summary

Global Equities: Stocks advanced in weekly trading thanks to mostly stellar earnings and inflation data that came in as expected. Technical support was also in play as the S&P 500 and Nasdaq both rebounded off oversold Relative Strength Index (RSI) levels. The S&P 500 gained 2.7% during the week, the Nasdaq Composite rebounded 4.2%, and the Dow Jones Industrial Average rallied 0.7%. Small Caps also advanced despite a possibly longer wait for a rate cut, gaining 2.7%. Developed International stocks gained 2.4% during the week while Emerging Markets finished up 3.7%.

Fixed Income: 10-Year Treasury yields shot up to over 4.7%, the highest level in over five months, after GDP data showed slower than expected growth. A Friday report showing inflation relatively in line with expectations caused rates to ease a bit, ending the week at 4.67%. High yield bonds gained in weekly trading, bouncing off oversold conditions with a gain of 0.8%.

Commodities: Oil prices were relatively unchanged during the week despite continuing Middle East tensions. US benchmark West Texas Intermediate crude ended the week trading around $83.75/barrel. America’s two largest energy companies, Exxon Mobil (XOM) and Chevron (CVX) both reported earnings on Friday, disappointing investors as lower refining margins and cratering natural gas prices weighed on returns.

Weekly Economic Summary

GDP Miss: First quarter Gross Domestic Product was estimated to be around 2.3%, which would have been the seventh consecutive quarter over 2% growth. The actual reading came in at just 1.6%, however, due to a higher trade deficit and weaker inventory growth. Consumer spending remained robust. This was the first estimate, and the data may be revised higher in the coming months. This week the Atlanta Fed issued its first estimate for second-quarter GDP, projecting a 3.9% growth rate.

PCE Inflation: The Fed’s preferred inflation measure, the Core Personal Consumption Expenditure Index, increased 0.3% during March, in line with expectations. On an annual basis, Core PCE was up 2.8%, unchanged from February. The three-month trend has reversed sharply higher after falling below 2% in prior months and has risen to 4.4%. Despite concerns that inflation has become entrenched, investors breathed a sigh of relief that the data did not come in worse than expected.

Earnings Season Update: There were a few heavy-hitters reporting earnings this week, starting with Tesla (TSLA), which reported a 9% decline in revenue, the steepest since 2012. Despite the lackluster results, investors celebrated plans for increased production of cheaper electric vehicles. TSLA was followed by Meta (META), which reported a solid earnings beat but saw shares tank -13% on heavy AI spending that may take years to see return on investment. The week closed with earnings from Microsoft (MSFT) and Alphabet (GOOG), which both beat and saw solid share price gains. Next week, Apple (AAPL) reports but the main event will be Nvidia (NVDA) earnings May 22nd.

Chart of the Week

The Chart of the Week shows the three-, six-, and twelve-month trends in Core PCE inflation, the Fed’s barometer of overall inflation in the economy. The Fed’s target is 2%, which appeared to be within striking distance just a few months ago. However, inflation has become hotter for the first quarter of 2024, which has triggered a sharp reversal most apparent in the recent 3-month trend. The Fed looks at the 3 and 6-month readings as most indicative of present conditions, so this view would suggest that rate cuts will not occur until September at the earliest. Further hot readings could push that timeline out to December, and as some Fed officials have cautioned, additional hikes are not off the table.

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