LSA Connect

Economic Update 4-22-2024

• Economic data for the week included gains in retail sales and industrial production, as well as for several regional manufacturing indicators. However, the index of leading economic indicators turned downward again, as did existing home sales and housing starts.

• Equities fell around the world last week, as higher-for-longer expectations for interest rates and geopolitical conflict in the Middle East put a damper on the mood. Bond prices also fell, being negatively impacted by the rise in rates. Commodities were mixed, with metals prices sharply up, and oil down as geopolitical tensions eased by the end of the week.

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.

Economic Update 4-08-2024

• Economic data for the week included ISM manufacturing improving into expansion, while ISM services/non-manufacturing slowed a bit, but remained in expansion as well. Nonfarm payrolls came in stronger than expected again, while job openings data has steadily flattened.

• Equities fell back in the U.S. and most of the developed world, while emerging markets saw small gains. Bonds generally fell back as yields rose. Commodities fared well across the board, with strong gains in both energy and metals.

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.

Economic Update 4-01-2024

• On a week shortened by the Good Friday holiday, economic data included the final U.S. GDP growth number for the 4^th quarter being revised slightly higher. Recent monthly data included gains in durable goods orders, and mixed house price and home sales data, as well as mixed results in consumer confidence.

• Equities fared positively around the world last week, with some economic improvements abroad and continued hopes for rate cuts mid-year. Bonds fared decently with a small decline in yields. Commodities saw gains, primarily in crude oil and gold.

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.

Economic Update 3-25-2024

• Economic data for the week included the Federal Reserve keeping interest rates unchanged, coupled with a continued balanced narrative. The index of leading economic indicators ticked up for the first time in years, coupled with stronger housing data, including improved existing home sales, starts, and homebuilder sentiment.

• Equities saw gains again around the world, led by strength in the U.S. and Japan. Bonds gained in the U.S. with a broad drop in yields, while foreign bonds were mixed, along with a stronger dollar. Commodities were little changed for the week with minimal price movement in crude oil.

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.

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.

Economic Update 3-19-2024

• Economic data for the week included a rise in retail sales, and a small increase in industrial production, while consumer sentiment fell back. U.S. consumer and producer inflation both came in a bit sticky on a monthly basis, but still well down from levels in prior months.

• Equities were mixed, with little change on net in U.S. and foreign markets, despite some divergences on a regional basis. Bonds fell back with rising yields, related to higher recent inflation readings. Commodities gained, driven by energy and industrial metals.

Economic Update 3-11-2024

• Economic data during the week included the ISM services falling back a bit but remained in expansion. The employment situation report was mixed, with decent February growth offset by prior month revisions.

• Equities fell back in the U.S., saw decent performance abroad. Bonds gained as yields fell across the curve. Commodities were mixed, with a drop in energy and a rise in metals.

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.

Economic Update 2-26-2024

• On the holiday-shortened week, economic data releases included another decline in the index of leading economic indicators, while existing home sales rose.

• Equities gained worldwide, led by the U.S. technology sector, improvement in developed market growth conditions, and stimulus in China. Bonds ticked higher as yields fell back a bit from the prior week. Commodities were mixed, with little change in crude oil prices.

Economic Update 2-20-2024

• Economic data for the week was mixed, including disappointments in retail sales and industrial production. Consumer and producer inflation both came in higher than expected, while housing data was mixed, with fewer starts but stronger builder sentiment.

• Global equities saw gains last week, despite mixed economic data. Bonds fell back as interest rates ticked higher along with higher-than-expected inflation data. Commodities were little changed, with crude oil prices only slightly higher.

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.