The Week in Review: 04/15/2024
“Know what you are talking about.” – Pope John Paul II
Good Morning,
The stock market closed with solid losses last week.
Market participants had a lot to digest on this busy week in terms of market-moving events.
The downside bias was driven by a jump in interest rates, a recalibration of rate cut expectations, and increased geopolitical tensions.
The added sticking point for the geopolitical angst, which was related to reports that Iran could soon attack Israel, was uncertainty related to the weekend and the potential that investors would not be able to react in real-time to any potential developments.
The negative bias in the stock market began before the reports, however. The market did not react favorably to a hotter than expected March Consumer Price Index (CPI). Total CPI increased 0.4% month-over-month versus an expected 0.3% increase and core-CPI, which excludes food and energy, increased 0.4% month-over-month versus an expected 0.3% increase.
The Producer Price Index (PPI) was cooler-than-expected on a month-over-month basis (actual 0.2%; expected 0.3%), but total PPI still accelerated to 2.1% in March from 1.6% in February.
These reports fueled worries about ongoing hawkishness from the FOMC and drove participants to rethink rate cut expectations. The probability of a rate cut at the June FOMC meeting fell to just 27.7% versus 69.3% one month ago, as predicted by the CME FedWatch Tool.
The market's expectations at the start of the year were for six rate cuts by the end of 2024, but the sudden change this week leaves the market with only two expected 2024 rate cuts now.
Treasury yields turned sharply higher in response to the data, and in response to a slate of weak Treasury auctions. There was a $58 billion 3-yr note auction on Tuesday, a $39 billion 10-yr note auction on Wednesday, and a $22 billion 30-yr bond auction on Thursday.
The 10-yr note yield jumped 12 basis points to 4.50% and the 2-yr note yield, which is most sensitive to changes in the fed funds futures rate, jumped 15 basis points to 4.88%.
Last week's losses follow a soft start to the Q1 earnings reporting period.
JPMorgan Chase CEO Jamie Dimon made some cautious-sounding macro comments and the bank left its net interest income guidance for 2024 unchanged from its prior view. Citigroup and Wells Fargo also logged declines after their earnings results.
The weakness in bank stocks led the S&P 500 financials sector to decline 3.6% last week. It was the worst performer, but all 11 S&P 500 sectors logged declines. The real estate (-3.1%) sector was another top laggard, clipped by the jump in market rates. The materials (-3.6%) and health care (-3.1%) sectors also fell more than 3.0%.
Market Snapshot…
- Oil Prices – Oil prices rose on reports that Israel is preparing for a direct attack on Iran. West Texas Intermediate crude hit a session high of $87.67 a barrel, while June Brent futures rallied to $92.18 a barrel.
- Gold– Gold prices rose to an all-time high prompted by growing tensions in the Middle East. Spot Gold eased up 1.5% at $2,336.87 per ounce. U.S. gold futures settled 0.1% higher at $2,374.1. Silver finished the week at $28.33.
- U.S. Dollar– The dollar posted an across-the-board rally. The dollar index, a measure of U.S. currency against six major trading partners, was up 0.7% at 106.0, a five-month high. Euro/US$ exchange rate is now 1.067.
- U.S. Treasury Rates– U.S. Treasury yields declined as investors considered the state of the economy after the release of inflation data. The 10-year Treasury yield was down more than 5 basis points at 4.52%.
- Asian shares were down in overnight trading.
- European markets are trading slightly higher.
- Domestic markets are trading higher this morning.
This week will feature several economic reports, including March Retail Sales today, March Industrial and Manufacturing Production on Tuesday, and speeches from multiple FOMC members throughout the week.
Earnings season is also set to pick up speed. This week we will hear from a little under 10% of the S&P 500, including Goldman Sachs, Charles Schwab, Johnson & Johnson, Netflix, and Proctor & Gamble. Factset currently estimates year-over-year earnings growth for the quarter to be +3.2% for S&P 500 companies.
This would mark the third straight quarter of positive growth.
Have a great week!!
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