On a holiday-abbreviated week, economic data included ISM manufacturing and services both falling and ending June in contraction. The employment situation report was strong on a headline level, but less so under the surface, with the unemployment rate rising by a tenth of a percent.
Equities gained ground worldwide last week, in both developed and emerging markets. Bonds also rallied as yields fell, especially in foreign markets as the U.S. dollar declined. Commodities fared well as the price of oil rose by a few percent.
U.S. stocks gained last week, with large cap growth outperforming, while small caps lagged with a decline. Fed Chair Powell’s speech at the ECB Forum on Central Banking in Portugal was taken well by markets, noting the growth in “two-sided” risks in achieving employment and inflation goals, which was a “big change” compared to a year ago. By week’s end, the June employment situation report was nuanced enough to show weakening at the edges, which was seen as potentially moving toward the path of at least some Fed easing becoming appropriate sooner than later. Earnings releases for Q2 are beginning this week, to likely take over investor attention.
Economic data for the week included the final release of Q1 U.S. GDP being revised up slightly, flattish durable goods orders, rising home prices, and lower new home sales. On the inflation side, core PCE continued to decelerate lower.
Equities were mixed last week, with flattish results in the U.S., except for small cap, which gained, and varied results abroad. Bonds generally lost ground as yields rose. Commodities were little-changed with a slight rise in the price of crude oil.
U.S. stocks were mixed last week, with large caps little changed, and small caps seeing gains. The end of the quarter has tended to be an unusual time, due to a variety of portfolio clean-up, ‘window dressing,’ and index rebalancing issues as considerations, leading to movements in both directions. It’s also possible that President Biden’s perceived poor performance in the first candidate debate caused another cloud to form over the election, with markets disliking uncertainty more than anything. By sector, energy led with gains of nearly 3% (with rising odds of a Trump victory pointing to better prospects for fossil fuels rather than green energy), followed by a slight gain in communications. On the lagging side, materials and utilities lost about a percent. Real estate gained despite interest rates ticking higher.
Economic data for the shortened week included some gains in retail sales and better results for industrial production, while existing home sales and housing starts fell back.
Equities saw further gains globally, led by international more than U.S., where value outpaced growth. Bonds were mixed to lower as yields ticked higher. Commodities were also mixed, with declines in grains offset by a rise in crude oil.
U.S. stocks saw moderate gains in the four-day trading week, with mixed economic data to react to. By sector, consumer discretionary, energy, financials, and industrials all saw gains of at least a percent, which led to sharper ‘value’ outperformance over ‘growth’ for a change. Utility and technology (mostly due to Nvidia and Apple) stocks lagged the pack with negative returns, with the aside that Nvidia overtook Apple and Microsoft as the largest stock in the world, as measured by market cap. Real estate also fell back by nearly a percent with yields moving higher.
Economic data for the week included the Federal Reserve meeting ending with no policy change, as expected, with continued hawkish views compared to earlier this year. Consumer and producer price inflation metrics both showed positive signs of slowing this week, albeit driven by volatile energy prices. Consumer sentiment remained weak.
Equities were mixed globally, with gains in the U.S. and emerging markets, while Europe and Japan experienced declines. Bonds rallied upon lower inflation and resulting lower yields. Commodities gained due to strength in crude oil.
U.S. stocks saw gains, led by improved inflation numbers mid-week, and subsequent drop in interest rates, as well as seemingly continued optimism over artificial intelligence (particularly as related to new Apple products). By sector, technology again led the way, up 6% percent with strength from several members, including Apple, Microsoft, Nvidia, and Adobe. The majority of other sectors ended in the red, led by -2% declines in financials and energy. One of the more volatile stocks was Tesla, which finally ended in the positive after Elon Musk’s massive pay package was approved by shareholders. Real estate also saw gains of over a percent in response to falling yields.
The Federal Reserve Open Market Committee (FOMC) kept the federal funds rate unchanged at 5.25-5.50% in their June meeting, continuing the range set since July 2023 without any dissenting votes. The formal statement was only slightly adjusted to reflect “modest” progress towards their inflation goal. The June Summary of Economic Projections (SEP) updated the Fed funds rate estimates for the end of 2024, 2025, and 2026 to 5.1%, 4.1%, and 3.1%, respectively. This marks an increase of 0.5% for 2024 and 0.2% for 2025 from the March estimates. The FOMC’s “dot plot” now suggests 1-2 rate cuts this year, down from the three expected in March.
Market expectations, as seen in the CME Fed funds futures, had nearly guaranteed no change in rates for the June meeting, with odds for July ranging between 80-90% for no change. September odds for a quarter-percent cut have risen to over 60%, while December expectations hover around two cuts. Projections for September 2025 indicate rates might fall to approximately 4.00%, implying 5-6 cuts from current levels.
Economic data for the week included gains in ISM services coupled with a decline in ISM manufacturing. The monthly employment situation report came in stronger than expected.
Equities earned positive results globally last week, led by the U.S. growth sector. Bonds also fared positively, as interest rates broadly declined. Commodities fell across the board last week.
For the short holiday week, economic data included U.S. GDP growth being downgraded a few tenths, continued improvement in lower PCE inflation, higher home prices, and improved consumer sentiment.
Equities were mixed globally, with developed markets down a bit on net, while emerging markets fell further. Bonds were little changed domestically, while foreign markets saw mixed results. Commodities fell back across a variety of sectors.
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.
Economic data for the week included stronger PMI activity surveys for manufacturing and services, and durable goods orders, while housing sales data came in weaker.
Global stocks were mixed last week, with the U.S. faring a bit better overall, while foreign stocks lagged, especially in emerging markets. Bonds fell mildly along with higher interest rates during the week, as the chances of the Fed and other central banks easing policy sooner faded. Commodities were mixed, with agriculture higher, and energy and metals lower.
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.
In a busy week for economic data, most of which was keyed in on inflation, consumer and producer prices continued strong in April, but showed signs of stabilization. Retail sales and industrial production were little changed, while housing data was mixed.
Equities rose globally with eased U.S. inflation and government stimulus in China. Bonds fared well as yields declined, especially in foreign markets due to a weaker dollar. Commodities were generally higher, led by metals and crude oil.
In a light week for economic data, jobless claims ticked higher, while consumer sentiment dropped sharply.
Equities saw gains in the U.S. and Europe, with marginal economic data keeping hopes alive for lower rates. Bonds were little changed in the U.S. on net, while foreign bonds were held back by a strong dollar. Commodity gains were led by precious metals and agriculture, while crude oil was little changed.
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.
Foreign stocks were mixed, with Europe earning the world’s strongest results for the week, followed by the U.K., while Japanese stocks lost ground for the week. European shares were boosted by stronger earnings results, along with continued high expectations for central bank rate cuts being not too far away. The Bank of England kept their policy interest rate steady, but with two votes for cuts this month, which provided some hints as to the closer timeline of upcoming cuts. The Swedish central bank did cut rates by a quarter-percent to 3.75%, easing for the first time since the hiking cycle started, but noted uncertainty as to the future path of inflation. With economic growth and labor markets more fragile in Europe, the decision to begin cutting has appeared an easier one than in the U.S.—a high likelihood remains for the ECB to begin in June. Japanese stocks were plagued by further yen depreciation, despite some recent central bank moves to shore up the currency. Emerging market stocks were flat as a whole during an oddly bifurcated week, with gains in China, Taiwan, and Mexico offset by declines in Brazil and India. Chinese stocks were helped by stronger holiday spending, as well as better trade data. The Brazilian central bank cut interest rates by a quarter-percent, to 10.50%, along with some hawkish rhetoric that wasn’t as well-taken by markets.
Bonds were minimally-changed during the week, along with little change in the Treasury yield curve. Senior floating rate bank loans outperformed with small gains, while high yield underperformed with a small loss. Foreign bonds were down generally, as the U.S. dollar strengthened a fraction of a percent last week.
Commodities were led by a sharp rise in gold, followed by higher agricultural prices. Crude oil gained for most of the week, before slipping back to just above where it started at $78/barrel. Gold prices have baffled some strategists, noting that stable to higher real yields have tended to pressure prices; however, the story continues of central bank buying demand, both as a hedge against potentially weaker economic growth but also some concern over potential impact of sanctions, which affect traditional safe havens, such as U.S. dollar reserves.
Period ending 5/10/2024
1 Week %
YTD %
DJIA
2.20
5.48
S&P 500
1.89
10.03
NASDAQ
1.17
9.12
Russell 2000
1.21
2.07
MSCI-EAFE
1.77
6.29
MSCI-EM
0.98
5.46
Bloomberg U.S. Aggregate
0.09
-1.97
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
5/3/2024
5.45
4.81
4.48
4.50
4.66
5/10/2024
5.47
4.87
4.52
4.50
4.64
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.
Economic data for the week included the FOMC meeting ending in no action, as expected, with dovish undertones at the press conference. Both ISM manufacturing and services fell back into contraction, while the employment situation report came in weaker than expected. Home prices continued their stretch of gains by several measures.
Stocks gained ground globally last week, with strong corporate earnings, but also weaker economic data that pointed to interest rates eventually dropping down the road. Bonds fared positively along with lower yields. Commodities fell back sharply, as oil prices declined for a variety of market and geopolitical reasons.
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.
In this week’s meeting, the Federal Reserve Open Market Committee kept the Fed funds range unchanged at 5.25-5.50%, where it has been since last July. There were no dissents.
Despite no action, messaging remains closely-watched for future signals. The formal statement evolved a bit, noting that activity ‘has continued to expand,’ acknowledging strength in growth. A line was added to the first paragraph that was a bit hawkish with frustration: ‘In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.’ Also, that employment and inflation goals ‘have moved toward better balance over the past year.’ A reduction in balance sheet drawdown was put into place starting in June, and was a bit deeper than expected, with the monthly runoff cap of Treasury sales being lowered from $60 bil. to $25 bil., which lowers some selling pressure in markets. There was no change in the MBS redemption cap ($35 bil.), with reinvestments being made into Treasuries. (It’s clear the Fed wants mortgages off the balance sheet.)
CME Fed funds futures markets had put the chances of no action today at 98%—it having risen over the past two months. (Briefly this morning, interestingly, a 1% chance of a 0.25% rate hike appeared.) For June (a long-assumed jumping-off point for policy easing), odds of at least one -0.25% cut had been as high as 60% a month ago, but now lie under 10%. September’s highest odds now point to no cuts, while those for December have now dipped to a single cut. The furthest-out estimate in Sept. 2025 have been volatile, now showing the highest odds for rates around 4.50%-ish, implying 3-4 total cuts from today’s level. Hopes for policy easing this year have fallen off a cliff, from early January’s assumed seven cuts to now only one. This reflects a simple narrative of still-decent growth and still-sticky inflation requiring ‘higher for longer.’ In fact, on the fringe, there are some calls for additional rate hikes to finally get inflation under control. Estimates for the long-term neutral rate have also evolved, with the Fed’s long-standing 2.5% anchor seen as maybe too low in a more persistent inflation era, with a number like 3.0% (or even a bit higher) seen as possible moving forward. The Fed has wrestled with these assumptions but is also guarding its own credibility in not wanting to tweak long-term targets based on short-term trends. The November election also throws a wrench into the plan, as the Fed would prefer to not make any policy moves seen as potentially benefiting either side, so timing could get tricky in the fall.
Economy. GDP growth for Q1 came in last week at a positive 1.6% annualized rate, but about a percent below expectations, and below the long-term trend pace of ~2%. Under the surface, consumption growth was stronger than the total suggested, being pulled down by inventories. Interestingly, the first estimate for Q2-2024 by the Atlanta Fed’s GDPNow tool came in at 3.9%, now revised down a bit to 3.3% this morning. The economy is still growing at a decent clip, even if not at last year’s fast pace still fueled by fiscal stimulus. Should slowing kick in, it could provide more ammunition to the Fed for a rate cut campaign, but that urgency doesn’t seem to be upon us yet.
Inflation. This focus of the Fed’s attention continued to improve from the summer 2022 peak (9%), but remains stubbornly high compared to target, with several upside surprises this year. The trailing 12-month CPI for March came in at 3.5% and 3.8% for headline and core (ex-food and energy), respectively. Their primary metric, core PCE, has been in the 2.8-2.9% area for the last four months. Within CPI, shelter has taken a fair share of the blame, although there are other pieces on the services side that have contributed, such as annual price adjustments for car insurance and health care. Some evidence of the unique shelter issue has been seen in other developed countries, which have lower weights to housing in their inflation calculations, and have experienced faster deceleration in inflation than in the U.S. However, foreign growth has also been weaker outright, which is a disinflationary force. The bottom line is inflation is still too high for the FOMC’s liking, per their comments about wanting to see at least several straight cooler reports before starting any easing. That mood shift was the primary driver behind the shifts in Fed funds probabilities in recent weeks. While inflation has dramatically improved from the worst of it, the last mile back to the ideal continues to be bumpy.
Employment. Labor has been a persistent bright spot of the economy. The unemployment rate for March fell back down again to 3.8%, along with still robust official nonfarm payroll numbers, and low jobless claims that point to a benign environment. However, some other measures like job openings (with some infill from immigration) and Challenger layoff reports have weakened at the edges. Wage growth has also decelerated a bit, which also has some positive inflation implications.
The Fed always reminds us that policy decisions are data-dependent, but this has been even more the case in the last few meetings. In contrast to strong messaging earlier in the year that cuts were just around the corner, still-robust economic growth and inflation have shrunk the odds of easing action this summer. Some Fed officials have even pointed to as far out as year-end or early 2025 for a starting point, in line with what futures markets believe. Consequences of a later timeline have included the drift upward in yields across the U.S. Treasury curve (especially in looking at real yields, although there are other fiscal factors at play also to elevate yields), and ongoing strength in the U.S. dollar (especially if the ECB begins cuts around June, potentially weakening the euro by comparison). These are in addition to keeping the cost of capital high, which eventually pressures economic activity generally and can hamper valuations for other risk assets, including stocks and real estate. On the other hand, eventually easing will lighten the load a bit for these cost of capital pressures. Then again, Fed officials have been publicly questioning how ‘tight’ current policy actually is—while difficult to measure in real time—with the evidence that conditions are rolling along just fine so far despite over 5% in rate hikes in a quick stretch, even with a policy lag. Historically, the 5%-or-so rate level is about ‘average,’ considering the extremes in both directions. Despite sentiment measures that have been lackluster for a while now, and some signs of slowing at the edges, overall conditions are not so bad out there at the moment.
Sources: CME Group, Federal Reserve Bank, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics.
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