Week in Review: April 19, 2024

April 22, 2024

Recap & Commentary

Markets ended the week lower with the S&P 500 suffering its worst week in 13 months, weighed down by the Tech sector which slumped 7.3%, its largest decline since March 2020. With recent data showing inflation potentially moving in the wrong direction, interest rates have moved markedly higher. Since bottoming in late December at 3.80%, the 10-Year yield has increased nearly 0.80%, with approximately half of that increase occurring in the past three weeks. In a scene reminiscent of 2022, the uptick in rates and growing concerns about when or even if the Fed will lower rates in 2024 have weighed particularly heavy on higher valuation stocks, including the “Mag 7.”

One of the fundamental ways in which investors value stocks is to discount future earnings back to the present. When interest rates are high, the present value of future earnings are worth less than when interest rates are low. For highly valued stocks, that can put downward pressure on prices, which is exactly what happened during the week.

Concerns about the timing and number of rate cuts in 2024 were exacerbated by comments made by Fed Chair Jay Powell. Addressing the recent increase in consumer inflation, Powell said, “The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence.” Other Fed speakers during the week echoed Powell’s message suggesting that rates are likely to stay “higher for longer” than previously expected.

Through Friday, 14% of S&P 500 companies had reported 1Q24 earnings.  Thus far, 74% of those companies have exceeded their consensus estimate. According to industry group FactSet, consolidated earnings growth is expected to be 0.5%.

Economic Commentary

Retail sales increased 0.7% in March, well above the 0.4% consensus forecast, with upward revisions to prior months as well. Year over year, sales increased 4%. Core sales, which exclude sales at gas stations and other volatile categories, and feed into GDP calculations, surged 1% during the month. The report depicted a still strong consumer and built on a recent run of data that’s likely to push a Fed rate cut out further than previously thought.

March housing data took a step back after better than anticipated activity in February.  Housing starts fell 14.7% to a 1.32M annual rate, far lower than the anticipated 1.49M. The decline was the steepest since the onset of COVID, as both single and multi-unit starts fell significantly during the month. Compared to a year ago, starts were down 4.3%.

Existing home sales declined 4.3% in March to a 4.19M annual rate, just shy of the expected 4.2M. Year over year, sales were down 3.7%. A sustained rebound in sales activity is likely to be prolonged. As peak homebuying season approaches, recent inflation data has moved mortgage rates higher, while expectations for rate cuts have dwindled since the beginning of the year.

As of last week, the Atlanta Fed’s GDPNow model is estimating first quarter real GDP growth of 2.9%.

Of Note

The House of Representative passed a bipartisan $95B foreign aid package that would provide $61B of funding for Ukraine, $26B for Israel, including humanitarian aid for Gaza, and $8B for Taiwan and other Asian allies.

Market Indices   (As of 04/19/2024)

S&P 500-3.1%
Small Caps-2.8%
Intl. Developed-2.3%
Intl. Emerging-3.6%
Commodities0.2%
U.S. Bond Market-0.6%
10-Year Treas. Yield4.63%
U.S. Dollar0.1%
WTI Oil ($/bl)$83
Gold ($/oz)$2,407

The Week Ahead

  • 1Q24 GDP
  • Core PCE
  • New Home Sales
  • Pending Home Sales
  • PMI Manufacturing & Services
  • Durable Goods Orders
  • Weekly Jobless Claims

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