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2020 Financial Markets Update

Week in Review: May 10, 2024

May 13, 2024

Recap & Commentary

Markets ended a relatively quiet week higher, with the S&P 500 closing within 1% of its all-time high set in late March. Economic data was light, leaving investors to focus on 1Q24 earnings and comments by a bevy of Fed officials following the central bank’s most recent FOMC meeting.

In general, Fed officials offered comments which hewed closely to those made by Fed Chair Jay Powell at his post-meeting press conference. While officials continue to expect the Fed will eventually cut rates, recent trends in inflation and broader economic data suggest there is no rush to do so, meaning rates are likely to remain “higher for longer” for now.

After rattling markets in early April by stating the Fed might not need to raise rates at all in 2024, Minneapolis Fed President Neel Kashkari repeated those views at a conference saying the combination of stubborn inflation and continued robust economic data will likely result in the Fed keeping rates at current levels for an “extended period” and might preclude any rate cuts at all in 2024. Though his most recent comments did not engender the same response as in early April, they highlighted just how far many Fed officials’ views on rate cuts have shifted since the start of the year.

Through Friday, 92% of S&P 500 companies had reported 1Q24 earnings.  Thus far, 78% have beaten their earnings estimate, while 59% have beaten their revenue estimate.  According to industry group FactSet, consolidated growth for 1Q24 is expected to be 5.4%, up from the expected 3.4% on March 31.

Economic Commentary

Consumer credit use rose at a slower pace in March, increasing $6.3B vs. expectations for $14.8B. Year-over-year, consumer credit increased 1.5%, slower than the 3.6% growth recorded in February. Credit card borrowing was flat in March, after increasing 9.7% in February. The pullback in borrowing should continue to raise questions around the resilience of the U.S. consumer as progress on key inflation measures has stalled.

As year-to-date measures of CPI have stalled, and in some cases reaccelerated, inflation expectations have also moved higher. The May consumer sentiment report showed consumers’ one-year inflation expectations jumped from 3.2% in April to 3.5% in May while 5-year expectations edged up 0.1% to 3.1%. Inflation expectations are important to monitor as they can influence the wage increases that workers demand, and price increases that businesses ultimately pass on to consumers. As consumers grew more concerned about inflation during the first part of the month, the headline consumer sentiment index fell to a six-month low. The decrease was broad based across age, income, and education groups.

Unemployment claims for the week rose 22k to 231k. The increase brought the number of claims to the highest level since the final week of August 2023. While still near historically low levels, following the weaker-than-expected April employment report, investors viewed the claims data as another potential sign that labor markets are weakening, which might in turn might pull forward the timing of expected Fed rate cuts.

Of Note

According to the Manheim Used Vehicle Value Index, used car prices in the US fell 2.3% in April, the largest monthly decline in six months. Compared to a year ago, used car prices fell 14% but remain 27% above pre-COVID levels.

Market Indices   (As of 05/10/2024)

S&P 5001.9%
Small Caps1.2%
Intl. Developed1.6%
Intl. Emerging1.0%
U.S. Bond Market0.1%
10-Year Treas. Yield4.50%
U.S. Dollar0.3%
WTI Oil ($/bl)$78
Gold ($/oz)$2,364

The Week Ahead

  • Consumer Inflation (CPI)
  • Producer Inflation (PPI)
  • Retail Sales
  • Housing Starts
  • Industrial Production
  • Weekly Jobless Claims

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