Economic Update 4-15-2024

• Economic news for the week was dominated by inflation, for which consumer prices disappointed by remaining sticky on the services side, while producer price inflation came in far cooler. Consumer sentiment fell back a bit.
• Global equities fell back with the negative influences of higher U.S. inflation and increased risk of conflict in the Middle East. Bond prices also declined as yields rose, along with the inflation report and assumed impact on the Fed. Commodities were mixed, with energy down and precious metals up.

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.

Speaking of earnings, the Q1 reporting season has begun, with FactSet estimating a 0.9% growth rate for the S&P 500 on a year-over-year basis, down from the 3.4% estimate a few weeks ago. If this seems a bit low, it’s due to the timing of the Q1-to-Q1 comparative, with an assumption this growth figure will rise over the next few weeks. Sector leadership is expected from utilities (interestingly), technology, and communications services, with estimates over 19% year-over-year, while energy, materials, and health care are expected to bring up the rear with declines exceeding -25%. For the S&P as a whole, full-year 2024 and 2025 earnings growth estimates are still robust at 10% and 14%, respectively, which also reflects the current soft landing narrative.

Foreign stocks slightly underperformed U.S. stocks, due to the headwind of a dramatically stronger U.S. dollar. The U.K. and Japan suffered lesser declines than Europe and emerging markets. The ECB unsurprisingly decided to keep key interest rates unchanged but noted that they could be close to the cutting point (perhaps June, before the U.S.), while comments from the Bank of England were a bit more hawkish about possibilities for a near-term cut, as GDP growth improved slightly (although just a few tenths above zero).

Bond prices pulled back as the sticky inflation print pushed yields higher across most maturities, with U.S. Treasuries and corporates faring similarly. Floating rate bank loans performed slightly better, with minimal change for the week. The stronger dollar worked against foreign bonds, which lost significant ground in both developed and emerging markets.

Commodities were again mixed for the week, with gains in precious metals of 3%, while energy fell by several percent. Crude oil prices declined -2% last week to $85/barrel, with rising inventories and the IEA’s cut to 2024 demand forecasts appearing to outweigh the Iran-Israel concerns. Gold prices continued to show strength along with elevated geopolitical risk, with retail investors increasingly jumping on board, including small bullion bars being offered by a popular warehouse club retail store.

Period ending 4/12/2024	1 Week %	YTD %
DJIA	-2.36	1.32
S&P 500	-1.52	7.86
NASDAQ	-0.45	7.97
Russell 2000	-2.91	-0.80
MSCI-EAFE	-1.12	3.20
MSCI-EM	-0.34	2.30
Bloomberg U.S. Aggregate	-0.70	-2.52

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2023	5.40	4.23	3.84	3.88	4.03
4/5/2024	5.43	4.73	4.38	4.39	4.54
4/12/2024	5.45	4.88	4.54	4.50	4.61

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                                    

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.