6/12/2024 brad
6/10/2024 brad
Economic Update 6-10-2024
U.S. stocks fared positively again last week, with investors digesting the mix of economic data. Interestingly, despite a weaker start Fri., stocks shrugged off the strong May employment report, although the strength implied a longer timeline for a Fed pause. By sector, leaders were technology (with strength in Nvidia, helped by the release of a new generation of chips, and perhaps also by a 10-for-1 stock split) and health care, with gains of 4% and 2%, respectively, followed by communications and consumer discretionary; utilities and energy lagged with declines of over -3%. Real estate was little changed, despite the fall in interest rates during the week. Large caps outperformed small caps.
6/3/2024 brad
Economic Update 6-03-2024
U.S. stocks fell on the shortened week, but ended May with solid gains to offset weakness from the prior month. By sector, energy and utilities led the way with gains upward of 2%, while technology fell back by over -2% (as a positive week for some stocks was offset by weakness in Salesforce, Adobe, and Microsoft). Real estate also gained, with Friday’s ‘less bad’ inflation news providing a boost.
5/28/2024 brad
Economic Update 5-28-2024
U.S. stocks were mixed last week, with technology closing with gains over 3% (leading the Nasdaq to more all-time highs), while all other sectors fell back, led by the largest losses from energy and financials. The earnings report for the Magnificent 7 member Nvidia was closely-awaited on Wed., which resulted in another strong report, in addition to a dividend raise and 10-for-1 stock split, and 15% return on the week. Real estate also fell back by nearly -4% along with higher interest rates, which punished the ‘value’ segment in general. Small cap stocks also underperformed large caps.
5/20/2024 brad
Economic Update 5-20-2024
U.S. stocks experienced positivity all week, with the S&P 500 and Nasdaq back to new record highs, based on slow downward progress in inflation reports taken well by financial markets, in addition to mixed economic data that could be seen as pushing the Fed in a more dovish direction. Nearly every sector experienced a gain last week, led by technology up 3% (Apple and Nvidia, but also others), followed by health care and communications; on the other end, industrials lost a fraction of a percent last week. Real estate also fared positively, as interest rates fell back. The Dow Jones Industrial Average achieved the milestone of 40,000, which is not meaningful in and of itself due to the unusual and antiquated structure of the index, but the media often reports on these round numbers when reached. In a bull market, that may provide an extra sentiment boost, fueled by some ‘fear of missing out,’ for investors who haven’t been paying as much attention.
5/13/2024 brad
Economic Update 5-13-2024
U.S. stocks saw a positive week, the third in a row, with price levels inching back toward all-time highs. This was in keeping with low volume, with little new economic data during the week. By sector, utility stocks led the way again, up over 4% on the week, followed by solid gains of over-2% in financials, materials, industrials, and consumer staples. Consumer discretionary lagged with minimal gains for the week, largely due to a sizable drop in Tesla shares. The somewhat surprising strength of lower-beta utility stocks has been seemingly led by strong earnings showings in Q1, hopes for lower rates later this year, and perhaps most importantly from sentiment, with an expected ramp-up in electricity needs from artificial intelligence in coming years.
5/6/2024 brad
Economic Update 5-06-2024
U.S. stocks turned the corner on a negative April, with gains last week. Softness early in the week appeared related to poor consumer sentiment and the looming Fed decision, as well as the attached message. On Wed., after the Fed meeting, markets had started down nearly a percent but completely reversed to up a percent by the time the press conference had started, before reversing backwards again. The discussion took on a more dovish tone than expected, highlighted by the answer of rate hikes ‘not really on the table’—removing a key tail risk markets had been worried about. The rally Fri. was directly related to a weaker-than-expected jobs report, and moderating wage pressures, that also restrained the ‘too hot’ economy risk and kept hopes for rate cuts alive.
4/29/2024 brad
Economic Update 4-29-2024
U.S. stocks rebounded last week, as the busiest week of the quarterly earnings season took more of the market’s attention. Per FactSet, nearly half of S&P 500 firms have now reported results, with over 75% with a positive earnings surprise, and 60% with a positive revenue surprise. The blended year-over-year earnings growth rate for the quarter also improved to 3.5%.
4/22/2024 brad
Economic Update 4-22-2024
U.S. stocks fell back for the third straight week, as the mood soured over concern around rising Middle East tensions and possibly higher-for-longer interest rates. By Friday, the measured response of Israel toward Iran appeared to calm markets a bit, after initially fearing a more robust escalation. Fed chair Powell implied that inflation has indeed been stickier than expected, noted by the comment, “It’s likely to take longer than expected to achieve that confidence,” and it may take the Fed longer than expected to hit its target (which was no surprise to markets). However, this was taken as another sign that the number of cuts assumed for this year may need to be rethought. Additionally, the New York Fed president implied that higher rates could be considered “to achieve their goals” if the data warranted that, while the Atlanta Fed president indicated policymakers wouldn’t be able to cut until year-end. Markets are obviously especially sensitive to interest rate policy semantics at this point. A variety of well-watched economists/strategies have extended their timeline for the first Fed cut from June to July or even September, but not all have.
4/15/2024 brad
Economic Update 4-15-2024
U.S. stocks suffered a down week largely due to persistent inflation pressures, as well as some escalating fears of conflict in the Middle East, with reports of a planned retaliatory Iranian attack on Israel (which occurred over the weekend, albeit being mostly neutralized). The drawdown on Wed. of over a percent was solely led by the CPI inflation number coming in ‘hotter’ than expected, disappointing markets that saw this as a sign that rate cuts might not begin in June as is the current base case, or that there might be fewer cuts this year (three being the base case). Friday’s poor showing was tied to weakness for some big banks (due to lower interest margins, particularly coupled with negative comments from JPMorgan’s management, particularly about inflation) that started off the Q1 reporting season. By sector, financials fared the worst, down nearly -4%, followed by declines of around -3% in materials and health care. Technology fared best, only suffering a minimal decline. Real estate also lost nearly -3% for the week, due to rising yields.
4/8/2024 brad
Economic Update 4-08-2024
U.S. stocks fell back last week, seeing more volatility than in the recent few months. By sector, energy stocks rose 4%, followed by communications up over a percent. The majority of other sectors lost ground, oddly led by normally defensive health care and consumer staples, down up to -3% each, with the former reacting to Medicare rates unchanged from the initial estimate. Real estate also fell -3%, hampered by higher long-term interest rates.
4/1/2024 brad
Economic Update 4-01-2024
U.S. stocks continued their run of positive weeks, with the S&P 500 again reaching record highs. However, breadth has improved, with outperformance from the equal-weight version of the index and small caps outperforming mega-caps. Value and more defensive parts of the market led, with the largest gains spread between utilities, energy, financials, and healthcare—all near or over 2%. Technology was one of only two sectors with negative returns for the week, down over a percent. Real estate saw gains of over 2% for the week as well.
3/25/2024 brad
Economic Update 3-25-2024
U.S. stocks continued a run of positivity, with the mid-week FOMC decision of leaving rates unchanged being far from a surprise, but the dovish press conference commentary boosted market sentiment, relative to the more hawkish tone that had been expected. Nearly all sectors saw gains last week, led by communications and consumer discretionary, up several percent each, while defensives health care rose a fraction of a percent. Real estate fell a fraction of a percent as well, despite improvements in interest rates. Sentiment in tech remained high, specifically with AI and trend leader Nvidia, as well as rumors of a possible Google-Apple AI-related partnership. Apple, however, was also held back by the U.S. government’s new lawsuit on anticompetitive grounds, with the claim that the iPhone prevented other firms from offering competitive services (via apps). This is not overly surprising, in a string of suits, including Google last year and separate investigations by the FTC against Amazon and Meta. Over the weekend, the President signed a $1.2 tril. government funding package, which avoids the possibility and uncertainty of a partial government shutdown.
3/20/2024 brad
At their March meeting, the Federal Reserve Open Market Committee kept the Fed funds range unchanged at 5.25-5.50%, where it’s been since last July. There were no dissents. The formal statement today was barely changed from January, when it was updated to a narrative depicting a more ‘balanced’ set of risks. Today, job gains were described from ‘moderated’ to ‘remain strong.’
Based on CME Fed funds futures markets, the probability of no action for March had risen to 99%, being in the high 90’s over the past month. For June, the chances of at least one 0.25% rate cut have run about 55-60% over the last few weeks. For September, the highest odds point to two cuts, and by December, the base case is three cuts to 4.50-4.75%. For Sept. 2025, the furthest-out estimate, the highest odds are for 5-6 cuts to around 4.00%. The number of assumed rate cuts has fallen over the last few weeks, as today’s sentiment reflects the narrative of improved growth and still-sticky inflation.
The Fed’s quarterly Summary of Economic Projections (SEP) included the ‘dot plot’—a chart that features committee member opinions of future Fed funds rates. One question has been whether the long-term neutral rate estimate would rise from its long-standing 2.5% level, reflecting more persistent inflation, larger fiscal deficits and debt, and perhaps the Fed’s reaction with a higher neutral rate level. Compared to December, the expected Fed funds rate was unchanged at 4.6% for 2024, up 0.3% to 3.9% in 2025, up 0.2% to 3.1% in 2026, and the long-term rate up a tenth to 2.6%. Though seemingly small changes, they represent an evolution in the thinking of the Fed about the prospects for long-term inflation and their ability to control it.
3/19/2024 brad
Economic Update 3-19-2024
U.S. stocks were mixed last week, with little change in large caps and declines for small caps. Tuesday’s CPI release didn’t provide the hoped-for sharper deceleration, but didn’t deteriorate further, which may have provided some relief, although interest rates continued to rise on an expected longer runway for the current Fed policy pause. Friday was a triple-witching day, which happens four times a year, featuring a compilation of option expirations and typically enhancing volatility. By sector, energy rose nearly 4% followed by materials, while consumer discretionary fell back about a percent. Real estate also declined by nearly -3%, being sensitive to rising yields during the week.
3/11/2024 brad
Economic Update 3-11-2024
U.S. stock sentiment was seemingly again driven by the back-and-forth of whether Federal Reserve rate cuts would be coming sooner rather than later. Fed Chair Powell’s testimony to Congress last week included that the short-term rate was ‘likely at its peak for this tightening cycle,’ with dialing back policy restraint this year, while also noting the risks of reducing interest rates too soon, as evidence showed the economy is growing, not moving towards recession. At the same time, greater confidence is still needed that inflation has been beaten, although they’re ‘not far’ from that place. This was taken by markets as another sign of around June as the starting point for policy easing, based on action seen in Fed funds futures markets.
3/5/2024 brad
Economic Update 3-05-2024
U.S. stocks continued a trend of gains last week, with small caps outgaining large caps. ‘Growth’ again outperformed ‘value,’ with optimism over artificial intelligence continuing to drive near-term sentiment. By sector, technology and consumer discretionary each gained over 2%, followed by increases in energy and materials. By contrast, defensives health care, utilities, and consumer staples lost ground. Real estate also rose several percent along with falling yields.
2/26/2024 brad
Economic Update 2-26-2024
U.S. stocks saw gains again last week, led by a Thursday rally driven by stronger-than-expected earnings, product demand, and forward-looking commentary from Nvidia, which continued to defy already high expectations. The focus is on artificial intelligence, and specialized chips leading the effort, buoying the entire stock market on promises of enhanced productivity.
2/20/2024 brad
Economic Update 2-20-2024
U.S. stocks started decently but ran into the wall of CPI inflation on Tuesday morning, which showed less improvement than expected. However, weaker retail sales helped the slowing growth narrative, as the timing and depth of interest rate cuts have been the primary concerns of markets over the past several weeks. While there were a variety of factors related to the new year, stickier prices could cause the Fed to delay the implementation of rate cuts further into the year.
2/12/2024 brad
Economic Update 2-12-2024
U.S. stocks saw continued gains last week, with the S&P 500 exceeding the milestone 5000 level. These tend to result in enhanced media attention on stocks, sometimes related to a ‘fear of missing out’ effect by investors. We are also reminded that, as stocks have tended to move upward over the long haul, new all-time highs are not necessarily cautionary signals.
Sector results were led by technology, up over 3%, followed by consumer discretionary, health care, and industrials. Defensive sectors consumer staples and utilities each lost over a percent on the week, with the latter likely along with higher interest rates. However, real estate saw minor gains for the week. From an earnings perspective, per FactSet, about two-thirds of firms in the S&P 500 have now reported results, with the blended year-over-year earnings gain now having improved to 2.9% (compared to a slight negative expectation at the start of earnings season).
2/5/2024 brad
Economic Update 2-05-2024
U.S. stocks were mixed until Wednesday, when the FOMC statement and post-meeting press conference alluded to lower chances of a March rate cut—contrary to market hopes for a sooner-than-later ease. Faster easing has been the growing narrative this year, despite continued strong economic data (and especially considering very strong labor data on Fri.).