MarketScape
Save
Weekly Market Update · 05.06.24
Stocks and Bonds Gain, Bank of England Expected to Stand Pat
A drop in Treasury yields last week across maturities boosted investment grade bonds. The Bank of England is expected this week to keep its policy rate unchanged.
- Markets & Economy
- Economic Insights & Trends
- Market & Investment Trends
- Central Banks
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
Investors are closely following central bank rate moves, which may impact investment returns.
Where it's going
The Bank of England may hold off on changes to its policy rate until August as inflation remains firm.
Last Week Review
Global stocks rose 1.0% while investment grade bonds gained 1.2% as Treasury yields fell 0.15% to 0.20% across maturities. For April, a significant rise in interest rates coincided with losses across stocks and bonds. Gold (+3%), the U.S. dollar (+2%) and emerging market equities (+1%) led asset classes during the month.
Fed Leaves Rate Unchanged, Still Sees Eventual Rate Cut
The Federal Reserve left its policy rate unchanged. Fed Chair Jerome Powell underscored that recent indicators have not given the Fed greater confidence that inflation is moving sustainably down, and that rate cuts will take longer than initially expected. But he also outlined several of the most likely scenarios for the rate path from here, none of which included a rate hike.
U.S. Labor Market Eases
The U.S. jobs report reflected a labor market that’s coming into better balance. The U.S. added 175,000 jobs in April, well short of the expected 240,000. The total labor force participation rate was unchanged at 62.7%, but the that includes only people from 25 to 54 years old ticked up. The unemployment rate increased to 3.9% from 3.8% in March. Wage growth was slower than expected at 0.2% month-over-month, bringing the year-over-year change to 3.9%. This was likely welcomed news for the inflation-fighting Fed after the first quarter came in hotter than expected earlier in the week.
U.S. Economic Activity Inches Toward Contraction
The U.S. manufacturing and services measures eased, inching closer to contraction. The same indicator showed that China’s activity remained in expansion and a Politburo meeting raised hopes of policy flexibility moving forward.
Eurozone Turns the Corner from Recession
In the first quarter, the grew 0.3% annualized, a turn from slight recession. Core inflation eased to 2.8% year-over-year with lower services inflation.
Mega-Cap Technology Companies Support Earnings
Amazon delivered strong earnings results, while Apple was weaker. However, Apple’s earnings report wasn’t as bad as feared and the company authorized the largest share buyback ever. With only NVIDIA left to report, total first quarter earnings of the companies are expected to rise 47% year-over-year versus 5% for the broader S&P 500 Index.
This Week Preview
Bank of England Expected to Stand Pat
The Bank of England is scheduled to meet on Thursday and expected to keep its policy rate unchanged until August as recent inflation data has remained firm.
China May Report Higher Imports and Exports
Several key China economic reports are scheduled to be released this week. Imports are projected to grow 4.6% year-over-year versus a decline of 1.9% in the prior report. Exports are also projected to improve to 1.5% from a decline of 7.5% prior. The China Consumer Price Index is expected to remain low at 0.2%, and the Producer Price Index is expected to decline 2.3%. We think investors will also assess credit data to gauge consumer and business willingness to spend.
Berkshire Hathaway, Disney to Report Earnings
Among this week’s notable companies set to report are Berkshire Hathaway (BRK) and Disney (DIS). With the bulk of companies having reported, aggregate first quarter earnings of companies in the S&P 500 Index are projected to grow 5% year-over-year on a 4% rise in sales. Earnings surprises for first-quarter earnings reports have been stronger than the historical average.
Source: Bloomberg for data, news developments and schedule of economic releases. Data as of May 5, 2024.
U.S. prime age labor force participation rate
This labor participation rate variation, compiled by the U.S. Bureau of Labor Statistics, represents the percentage of people in the U.S. from 25 to 54 years old who are working. Compared to the labor participation rate that counts all people 16 years and older, the prime-age rate is less sensitive to demographic effects because retirement-age adults aren’t included.
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
U.S. Employment Cost Index
The Employment Cost Index measures the change in the hourly labor cost to employers over time, as measured by the U.S. Bureau of Labor Statistics.
Magnificent Seven
The “Magnificent Seven” companies are Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, which drove the sharp rise in U.S. stocks in 2023.
Main Point
Central Banks on Hold
The early-2024 excitement of a potential series of interest rate cuts by central banks has subsided as inflation stays stubborn. The Federal Reserve kept its policy rate unchanged last week while the Bank of England is expected to stand pat this week.
Contact Us
Interested in learning more about our expertise and how we can help?
IMPORTANT INFORMATION
Northern Trust Asset Management (NTAM) is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
Issued in the United Kingdom by Northern Trust Global Investments Limited, issued in the European Economic Association (“EEA”) by Northern Trust Fund Managers (Ireland) Limited, issued in Australia by Northern Trust Asset Management (Australia) Limited (ACN 648 476 019) which holds an Australian Financial Services Licence (License Number: 529895) and is regulated by the Australian Securities and Investments Commission (ASIC), and issued in Hong Kong by The Northern Trust Company of Hong Kong Limited which is regulated by the Hong Kong Securities and Futures Commission.
For Asia-Pacific (APAC) and Europe, Middle East and Africa (EMEA) markets, this information is directed to institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. This document may not be edited, altered, revised, paraphrased, or otherwise modified without the prior written permission of NTAM. The information is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. NTAM may have positions in and may effect transactions in the markets, contracts and related investments different than described in this information. This information is obtained from sources believed to be reliable, its accuracy and completeness are not guaranteed, and is subject to change. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor.
This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Indices and trademarks are the property of their respective owners. Information is subject to change based on market or other conditions.
All securities investing and trading activities risk the loss of capital. Each portfolio is subject to substantial risks including market risks, strategy risks, advisor risk, and risks with respect to its investment in other structures. There can be no assurance that any portfolio investment objectives will be achieved, or that any investment will achieve profits or avoid incurring substantial losses. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Risk controls and models do not promise any level of performance or guarantee against loss of principal. Any discussion of risk management is intended to describe NTAM’s efforts to monitor and manage risk but does not imply low risk.
Past performance is not a guarantee of future results. Performance returns and the principal value of an investment will fluctuate. Performance returns contained herein are subject to revision by NTAM. Comparative indices shown are provided as an indication of the performance of a particular segment of the capital markets and/or alternative strategies in general. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index. Net performance returns are reduced by investment management fees and other expenses relating to the management of the account. Gross performance returns contained herein include reinvestment of dividends and other earnings, transaction costs, and all fees and expenses other than investment management fees, unless indicated otherwise. For U.S. NTI prospects or clients, please refer to Part 2a of the Form ADV or consult an NTI representative for additional information on fees.
Hypothetical portfolio information provided does not represent results of an actual investment portfolio but reflects representative historical performance of the strategies, funds or accounts listed herein, which were selected with the benefit of hindsight. Hypothetical performance results do not reflect actual trading. No representation is being made that any portfolio will achieve a performance record similar to that shown. A hypothetical investment does not necessarily take into account the fees, risks, economic or market factors/conditions an investor might experience in actual trading. Hypothetical results may have under- or over-compensation for the impact, if any, of certain market factors such as lack of liquidity, economic or market factors/conditions. The investment returns of other clients may differ materially from the portfolio portrayed. There are numerous other factors related to the markets in general or to the implementation of any specific program that cannot be fully accounted for in the preparation of hypothetical performance results. The information is confidential and may not be duplicated in any form or disseminated without the prior consent of (NTI) or its affiliates.
Forward-looking statements and assumptions are NTAM’s current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information.
Not FDIC insured | May lose value | No bank guarantee