The Week in Review: 05/06/2024

The difference between fiction and reality? Fiction has to make sense.”
– Tom Clancy

Good Morning ,

It was another choppy week in the markets amid a slate of earnings news and market-moving economic releases.

Center stage was the FOMC Meeting which as we expected left rates unchanged.

What is driving the markets in both directions are the guesswork surrounding when the Fed might start easing rates.

Ultimately, the major indices all settled with gains on the week.

The Russell 2000 is now positive on the year following a 1.7% gain since last Friday.

Gains in the mega cap space again had a strong influence on index performance last week.

Apple and Amazon.com were standout winners in the mega cap space last week following pleasing earnings and outlook. Apple shares gained 8.3% and Amazon shares increased by 3.7%.

Market participants were also digesting mixed economic releases.

The Employment Cost Index for Q1 reflected a 1.2% increase in compensation costs versus expectations for a 1.0% increase. This report piled onto emerging worries about sticky inflation and about the Fed pushing back its rate cut timeline.

Solid growth is still occurring, just not at the breakneck pace we saw in 2022 and 2023.

According to the Bureau of Labor Statistics, nonfarm payrolls increased by 175,000 jobs last month. This marks the smallest gain since October 2023. The labor market continues to cool off, yet remains healthy.

Fed Chair Powell calmed some of those fears during his press conference where he stated that it was "unlikely that the next policy rate move will be a hike."

This followed the FOMC's unanimous decision to leave the fed funds rate range at 5.25-5.50%, as expected, noting that there has been a lack of further progress toward reaching the inflation target in recent months.

Friday's release of the April employment report was met with positive action. The report was weak enough to reduce concerns about a potential rate hike, but not weak enough to invite worries about the state of the labor market.

Nonfarm payrolls increased a smaller-than-expected 175,000 (consensus 250,000), average hourly earnings were up a smaller-than-expected 0.2% (consensus 0.3%), the unemployment rate was up a higher-than-expected 3.9% (consensus 3.8%), and the average workweek was a smaller-than-expected 34.3 hours (consensus 34.4).

At the end of the week, the economic news was mostly a non-event and our markets recovered nicely.

Treasury yields settled the week lower in response to the data, acting as support for equities. The 10-yr note yield declined 17 basis points last week to 4.50%. The 2-yr note yield declined 19 basis points last week to 4.81%.

Only three of the S&P 500 sectors logged declines last week, while the utilities (+3.4%) and consumer discretionary (+1.6%) sectors saw the largest gains. The energy sector was the weakest performer by a wide margin, dropping 3.4% as oil prices settled back below $80.00/bbl., down nearly 7.0% to $78.05/bbl.

Lastly, the S&P 500 and Nasdaq Composite faced a technical overhang last week as the indices approached their respective 50-day moving averages. The S&P 500 was just a hair shy of its 50-day moving average (5,129) at Friday's close while the Nasdaq Composite closed above its 50-day moving average (16,057).

Market Snapshot…

• Oil Prices – Oil prices fell and were on course for their steepest weekly loss in three months. West Texas Intermediate for June fell 84 cents, or 1.06%, to settle at $78.11 a barrel, while Brent crude futures for July were down 71 cents, or 0.85%, to settle at $82.96 a barrel.
• Gold– Gold prices fell to a one-month low on Friday despite weaker-than-expected U.S. jobs data. Spot Gold was down 0.05% to $2,302.09 per ounce. U.S. gold futures were marginally higher at $2,311.10. Silver finished the week at $26.69.
• S. Dollar– The dollar fell to a three-week low on Friday after data showed that U.S. jobs growth slowed more than expected in April. The dollar index was last down 0.2% at 105.04. Euro/US$ exchange rate is now 1.08.
• S. Treasury Rates– U.S. Treasury yields dropped on Friday after April’s jobs report showed weaker-than-expected payrolls growth and an unexpected tick higher in the unemployment rate. The U.S. 10-year Treasury yield fell Friday as traders parsed the closely watched inflation data released earlier in the day. The 10-year Treasury yield was off by about 7 basis points to 4.5%.
• Asian shares were lower in overnight trading.
• European markets are trading higher.
• Domestic markets are trading higher this morning.

Earnings are solid…

We're mostly through earnings season with 80% of S&P 500 companies reporting, with a blended growth rate of 5.0%. This would be the highest year-over-year growth rate since Q2 2022 if the season ended today. Last week we heard from two of the largest companies in the world.

This week will be relatively light on the economic report front, leaving corporate earnings center stage. Even though more than three quarters of the S&P 500 has reported, there are still many prominent companies on the schedule. This week we'll hear from Tyson Foods, Uber, Disney, and Airbnb to name a few. A strong close to earnings season with additional surprises could help push the broad indices back to all-time highs.

Have a fantastic week!

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