Week in Review: May 3, 2024

May 6, 2024

Recap & Commentary

Markets ended the week modestly higher aided by April’s weaker-than-expected jobs report which helped offset the Federal Reserve acknowledging that the fight against inflation has stalled and as a result, is unlikely to cut interest rates in the near term, until it gains the necessary confidence that inflation is headed sustainably lower. Another busy week of 1Q24 earnings reports also vied for investor attention.

On Wednesday, as expected, the Fed left the Fed Funds rate unchanged at its current range of 5.25-5.50%. Speaking afterwards, Fed Chair Jay Powell acknowledged that recent inflation data has been disappointing and has not fostered the necessary confidence for the Fed to consider cutting rates. Following the recent swing in market sentiment some economists were beginning to question whether in fact the Fed might have to raise rates further. When asked, Powell said he thought that it was “unlikely that the next policy rate move will be a hike.” Later, when asked under what scenarios the Fed might consider cutting rates, Powell said that an “unexpected weakening in the labor market” could prompt a rate cut. That likely explained the markets goodnews- is bad reaction to Friday’s employment report which saw job creation in April slow to its lowest level in six months.

Through Friday, 80% of S&P 500 companies had reported 1Q24 earnings. Thus far, 77% have beaten their earnings estimate, while 61% have beaten their revenue estimate. According to industry group FactSet, consolidated growth for 1Q24 is expected to be 5.0%, up from the expected 3.4% on March 31.

Economic Commentary

Economic data headlined by the April jobs report came in worse than expected last week. Nonfarm payrolls increased by 175K during the month, well below the consensus forecast of 238K. The unemployment rate increased to 3.9% vs. expectations that it would remain at 3.8%. Average hourly earnings rose 0.2% during the month, while hours worked declined 0.1%. The market appeared to interpret the miss as strong enough to keep recession expectations at bay, but weak enough to keep the door open for rate cuts in the 2nd half of the year.

After briefly expanding last month, the ISM Manufacturing index declined to 49.2 in April, below the expected reading of 50. The index was led lower by sluggish demand, which fell back into contraction territory, and slowing production, which softened since March. Prices paid rose for the third consecutive month, reaching their highest level since June 2022. Increasing costs bear watching, as goods prices have been a primary driver of the broader deceleration in consumer inflation since mid-2022.

The ISM Services index contracted in April for the first time since December 2022. Services PMI came in at 49.4 vs. expectations for 52. The business activity and new orders indices continued to grow in April, but at a much slower pace than prior months. While activity in the sector slowed, the same can’t be said for prices which increased for the 83rd consecutive month and rose to their highest level since January.

Of Note

Revised data showed the Euro Zone entered recession in 4Q23 as GDP contracted for the second consecutive quarter. That stood in sharp contrast to the US which defied recession expectations as the economy grew 2.5% in 2023.

Market Indices   (As of 05/03/2024)

The Week Ahead

• Consumer Credit
• Consumer Sentiment
• Weekly Jobless Claims