Market Recap – April 26, 2024

Summary:

  • Weekly Returns (Friday Open – Thursday Close) & YTD Returns*: [1]

Despite a GDP report that fell short of expectations, the markets displayed a generally positive trend this week. This resilience can be attributed to the performance of the S&P 500 companies, where 14% reported their results, with an impressive 74% exceeding earnings expectations. On the other hand, the bond market experienced a downturn, primarily driven by increasing yields. This increase in yields was a response to the price pressures highlighted in the PCE report. [1]

  • GDP Report: Q1 real GDP growth was notably below expectations, registering at 1.6% compared to the anticipated 2.5% by Wall Street and the 2.7% forecasted by the Federal Reserve’s GDP Now model. This represents a decline from the previous quarter’s 3.4% growth. A strong US dollar contributed to a significant increase in imports, which negatively impacted GDP by nearly 1%. Federal spending during tax season showed little growth, a change from its previous contributions to GDP in recent quarters. Despite these factors, consumer spending remained robust and housing investment significantly bolstered GDP growth. [2]
  • Google Easy Beat: Google parent Alphabet saw its shares jump over 14% in extended trading Thursday as the tech giant reported first-quarter results well above analyst expectations. The company also announced its first-ever dividend of 20 cents per share, with the first payment June 17th to shareholders of record as of June 10th. Alphabet’s board also approved a colossal stock buyback of up to $70 billion. [3]
  • PCE Report: The Federal Reserve’s primary inflation indicator, the Personal Consumption Expenditure (PCE) index, remained steady in March at 0.8 percent, with a 12-month rate of 2.7 percent. Excluding food and energy, core PCE rose to 2.8 percent, surpassing expectations, and the Fed’s 2 percent target. Unlike the CPI, which heavily weights shelter costs, the PCE allocates only 15 percent to this category. The uptick in March’s figures was driven by increases in healthcare and energy costs, while food prices decreased. Personal income also rose in March to 0.5 percent from February’s 0.3 percent. [4]

Chart of the Week:

Economic Outlook:

  • Unemployment: We assign a greater than 60% probability of the unemployment rate ending 2024 at over the Fed’s 4.0% target due to an increase in layoffs as heavily indebted firms struggle to refinance their debt at higher interest rates. [5]
  • Consumers: Our analysis indicates that consumer demand is expected to remain strong, contingent upon the unemployment rate maintaining a level below 4%. Nevertheless, we maintain a cautious stance regarding the potential for consumers to overextend themselves financially through excessive use of credit.
  • Credit Markets: We have reduced credit exposure in the portfolios as credit spreads are at historic lows despite large amounts of corporate refinancing in the next 12 at higher interest rates. [6]

*US Small Cap Stocks is Russell 2000

*US Bond Market is Bloomberg Aggregate

*International Stocks is MSCI ACWI ex-US Index

*Weekly Returns is April 5th, 2024-April 11th, 2024

*YTD is Jan 2nd, 2024-April 11th, 2024

By: Nick Colletta, CFA, CAIA

Sources:

  1. https://www.morningstar.com/
  2. https://markets.businessinsider.com/news/stocks/stock-market-today-gdp-1q24-inflation-economy-tech-stocks-microsoft-2024-4
  3. Google Parent Alphabet Jumps on Earnings Beat, First-Ever Dividend (msn.com)
  4. S. issues travel warning for Israel with Iran attack believed to be imminent and fear Gaza war could spread – CBS News
  5. Businesses continue to struggle with high prices and interest rates | Federal Reserve Bank of Minneapolis (minneapolisfed.org)
  6. ICE BofA US Corporate Index Option-Adjusted Spread (BAMLC0A0CM) | FRED | St. Louis Fed (stlouisfed.org)

Bridge Advisory LLC Disclosures

Bridge Advisory, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Investment Advisory Services offered through Bridge Advisory, LLC. Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Information herein has been obtained from sources believed to be reliable, but Bridge Advisory, LLC. does not warrant its completeness or accuracy; opinions and estimates constitute our judgment as of this date and are subject to change without notice. This newsletter expresses the views of the authors as of the date indicated and such views are subject to change without notice.

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