Week in Review: April 5, 2024

April 8, 2024

Recap & Commentary

Markets ended the week lower as investors fretted about better-than-expected economic data and its impacts on anticipated Fed rate cuts in 2024. That angst was evident in the 10-Year Treasury yield which rose 0.19% over the course of the week to end at 4.40%, its highest level since November.

In January, markets expected a total of six rate cuts over the course of the year.  Since then, those expectations have declined, falling in line with the Fed’s forecast of three rate cuts. However, as economic data continues to generally exceed expectations and inflation remains slow to return to the Fed’s 2% target, doubts about the timing and even the number of rate cuts have increased.  While most economists continue to expect the Fed to cut rates later this year, increasingly there is talk that the Fed might not cut rates before 2025. Those concerns appeared to be validated, at least to a degree, on Thursday, when Minneapolis Fed President Neel Kashkari said, “If we continue to see inflation moving sideways, then that would make me question whether we need to do those rate cuts at all.”

Friday’s strong employment report added to idea that the Fed can be patient with respect to rate cuts. Nonfarm payrolls added 303K jobs in March, tied with May 2023, for the strongest growth since January 2023. In another milestone, the leisure and hospitality sector finally recovered all of the 8.2M jobs lost at the depths of the pandemic following the addition of another 49K jobs in March.

Economic Commentary

Economic data, headlined by the March Employment Report, was generally stronger than anticipated last week.  Nonfarm payrolls rose 303K in March, well ahead of the expected gain of 212K, with upward revisions of 22K made to prior months’ data as well.  The unemployment rate, as measured by a separate survey of households, decreased by 0.1%, to 3.8%, marking the 26th consecutive month of sub 4% unemployment.  Additionally, average weekly hours increased by 0.1 to 34.4 hours, and hourly earnings held pace with inflation rising by 0.3% during the month, and 4.1% on a year-over-year basis.

The ISM Manufacturing Index increased to 50.3 in March, marking the first expansion in the sector since September 2022. The reading was well ahead of expectations for 48.5 and was driven by both new orders and production, which both expanded during the month. Challenges remain, however, with the employment index contracting for the sixth consecutive month, as firms continued to lower head count through layoffs.  Prices paid in the sector also continued to increase during the month as commodities prices rose, which bears watching as goods prices have been a tailwind to cooling inflation over the past year.  The Services sector continued to expand in March, albeit at a slower pace.  The ISM Services Index declined to 51.4 in March vs. expectations for 52.8.  New orders and production both remained comfortably in expansion territory.  Employment contracted for the 2nd consecutive month as respondents noted a cautious approach to hiring. The prices paid index increased for the 82nd consecutive month, but at the slowest pace in four years.

Of Note

US investment-grade bond issuance reached $530B in 1Q24, the best start to a year on record, surpassing the prior high of $479B. Companies appeared to be trying to take advantage of a recent drop in rates and strong investor demand.

Market Indices   (As of 04/05/2024)

The Week Ahead

• March CPI
• March PPI
• Consumer Sentiment
• Weekly Jobless Claims