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Weekly Market Update · 04.29.24
Global Equities Gain on Tech Earnings, Fed to Evaluate Inflation at Meeting This Week
Strong earnings from Google and Microsoft lifted stocks. While no move is expected from the Federal Reserve this week, investors likely will focus on their comments on stubborn inflation.
- Markets & Economy
- Economic Insights & Trends
- Federal Reserve
- Market & Investment Trends
Key Points
What it is
We review how key events from last week affected markets and highlight what could impact markets this week.
Why it matters
Inflation likely will influence the Fed’s rate outlook, which could affect stock and bonds returns.
Where it's going
U.S. wage growth and the job market, both scheduled for release this week, may steer the Fed’s outlook as well.
Last Week Review
Global equities gained 2.6% with broad-based gains across the major regions. Investment grade bonds were flat. The two-year Treasury yield also was flat on the week, but the 10-year yield moved up 0.04% to 4.66%. The average high yield credit spread contracted 0.19% to 3.04% and the asset class returned 0.6% on the week.
Tech Stocks Lift U.S. Market
Strong first quarter earnings from Google (GOOG) and Microsoft (MSFT), including reported traction on artificial intelligence, helped offset declines in Meta (META). With nearly half of S&P 500 Index companies reporting, aggregate earnings growth is forecasted to finish up about 3% year-over-year.
U.S. Economic Growth Eases but Stays Solid
Key U.S. economic growth indicators fell below expectations last week, but aggregate demand remains solid. On the weaker side, the flash unexpectedly softened for services and manufacturing. First quarter economic growth slowed to 1.6% annualized, below the expected 2.5%. However, the rise in real final sales to private domestic purchasers, a gauge of underlying demand, was stronger at 3.1%. Moreover, nominal personal income grew and real spending topped expectations, while initial jobless claims remained low.
Stubborn U.S. Inflation Softens Rate Cut Estimates
The rise in the in March was higher than expected at 2.8% year-over-year, though the month-over-month increase was in-line with expectations. With continued signs of inflation, are pricing in one to two rate cuts by the Federal Reserve by year-end versus more than six priced in at the beginning of the year.
This Week Preview
Fed Unlikely to Change Rate This Week
The Fed isn’t expected to make a rate move on Wednesday, but we think investors will follow their comments closely after recent inflation indicators have led the market to reprice the . Prior to the Fed announcement, the Employment Cost Index for the first quarter is scheduled for release on Tuesday. We think this will help gauge wage growth, a key watchpoint for a Fed fighting services-driven inflation.
U.S. Job Creation May Fall Some
We think investors should also pay close attention to Friday’s U.S. jobs report for April, as well as other jobs-related data in the leadup to it. Current expectations are for 250,000 jobs added (down from 303,000 in March), the unemployment rate to remain unchanged at 3.8% and wage growth to ease slightly to 4.0% .
First Quarter Eurozone Economic Growth May Be Flat
Real eurozone economic growth, scheduled for release on Tuesday, is expected to be 0.1% annualized. This would mark progress from slight contraction in the back half of last year. Final Purchasing Managers’ Index reports for the U.S., eurozone, U.K. and China also are scheduled for release throughout this week.
Amazon and Apple Set for First Quarter Earnings Reports
Amazon (AMZN) is scheduled to report earnings on Tuesday, Mastercard (MA) is set for Wednesday and Apple (AAPL) is scheduled for Thursday.
Source: Bloomberg for data, news developments and schedule of economic releases. Data as of April 28, 2024.
Purchasing Managers Index (PMI)
The PMI provides insights into the current trends and future direction of economic activity in the manufacturing and service sectors. It sets the federal funds rate target, which is achieved through open market purchases by the Federal Reserve and has a broad impact on interest rates in the financial system and the economy. The committee consists of 12 members from regional reserve banks
Core Personal Consumption Expenditures Price Index
The index is a measure of the prices that people living in the U.S., or those buying on their behalf, pay for goods and services. It captures inflation or deflation across a wide range of consumer expenses and reflects changes in consumer behavior. The core index makes it easier to see the underlying inflation trend by excluding two categories — food and energy — where prices tend to swing up and down more dramatically and more often than other prices.
Federal funds futures
Federal funds futures are contracts used to hedge short-term interest rate risk. They reflect the market's insight on the future course of the Federal Reserve's policy rate.
Main Point
Fed Faces Stubborn Inflation and Wage Growth
With U.S. inflation still persisting, we think investors should watch closely wage growth and strength in the job market. The 10-year yield rose last week as futures markets continue to price in less rate cuts this year. The Federal Reserve isn’t expected to change its policy rate this week.
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