Market Recap – April 5, 2024

Summary:

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

Price pressures increased across the board this week with commodity prices, manufacturing data, and employment all showing signs of increased inflation potential. Additionally, the Federal reserve commentary implied that they may not raise interest rates as quickly as the market anticipated. Both the stock and bond markets declined given potential for higher rates.

  • Labor Markets: Nonfarm payrolls saw an addition of 303,000 jobs compared to the 200,000 expected, marking a significant beat. The unemployment rate also declined from 3.9% to 3.8%, and the labor force participation rate increased from 62.5% to 62.7%. Overall, these are very strong headline numbers, but they were driven by part-time jobs. [2]
  • Commodities Surge: Crude oil, cocoa, copper, gold, and silver have been leading the commodity rally on the back of increased manufacturing demand, gold buying from central banks, supply constraints and geopolitical risks. This is stoking fear in rate sensitive markets due to the risk of inflation being passed through these increased commodity prices. [3]
  • ISM Purchasing Manager’s Index (PMI): The ISM PMI indicated that manufacturing economic activity expanded for the first time since September 2022, with a reading of 50.3%, a 2.5-point increase from February’s 47.8%. Survey comments from industry executives reflect strong business activity and optimistic projects for 2024. [4]

Chart of the Week:

Immigration has caused a surge in US Population Growth

 

Economic Outlook:

  • Equity: We expect a broadening of stock market returns beyond the Magnificent 7 as corporate earnings continue to improve and recommend clients maintain diversified equity exposure, with a tilt towards quality companies.
  • 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]
  • Fiscal Policy: We expect fiscal policy to remain stimulative for the foreseeable future after the House passed a $1.2 trillion spending bill to avert a government shutdown. [6]
  • Short-Term Interest Rates: We put the odds of any rate cut before June of 2024 at less than 10%. Goods inflation should reaccelerate as services inflation moderates, leading to potential rate cuts in the second half of 2024.
  • 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. [7]

*US Small Cap Stocks is Russell 2000

* US Bond Market is Bloomberg Aggregate

*International Stocks is MSCI ACWI ex-US Index

*Weekly Returns is March 29th, 2024-April 4th, 2024

*YTD is Jan 2nd, 2024-April 4th, 2024

By: Nick Colletta, CFA, CAIA

Sources:

  1. https://www.morningstar.com/
  2. March’s ‘Blowout’ Jobs Numbers Underscore ‘American Exceptionalism’: 5 Economists Analyze 2024 Rate Cut Implications | Markets Insider (businessinsider.com)
  3. Not All Investments Will Suffer From Inflation — Expert Predicts ‘Trillion Dollar’ Market Shift, Hard Assets Will Surge (msn.com)
  4. ISM Report: Manufacturing Activity Expands Following 16 Months of Contraction | IndustryWeek
  5. Businesses continue to struggle with high prices and interest rates | Federal Reserve Bank of Minneapolis (minneapolisfed.org)
  6. House passes $1.2 trillion government spending bill to avert government shutdown (msn.com)
  7. 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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