Market Recap – May 10, 2024

 

Summary:

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

Markets surged this week, with 43 of 61 S&P 500 companies reporting earnings exceeding analysts’ expectations. So far this quarter, about 78% of the 444 companies have surpassed per-share earnings forecasts, and 57% have exceeded revenue expectations. Strong earnings and lower long-term interest rates, spurred by a dovish Federal Reserve meeting, have driven the market upward. [1]

  • AI & Pharma: Google and Isomorphic Labs have launched AlphaFold 3, an AI model that improves understanding of the human body by modeling and visualizing the 3D structures of biomolecules like DNA, RNA, proteins, and ligands. Alongside, they introduced AlphaServer, a platform offering scientists free access to some features. This advancement is expected to significantly accelerate drug development. [2]
  • Brazilian Flooding: Rains resumed in Rio Grande do Sul on Friday, where historic flooding has killed 113 people. Over 385,000 residents lack water, and 20 cities are without telecom services. As a major agricultural exporter, Brazil’s persistent floods through May are raising global freight rates. [3]
  • Consumer Sentiment: Consumer sentiment fell to a six-month low of 67.4 this month, down from 77.2 in April, due to inflation and unemployment concerns. Despite the drop, this preliminary indicator still represents a 14% increase from last year. [4]

Chart of the Week:

Source: Drewry Supply Chain Advisors

Economic Outlook:

Summary: 

Recent economic indicators, including labor markets, purchasing manager indices, and sentiment, have underperformed expectations. Despite this, prospects for strong growth in the next quarter are cautiously optimistic, supported by increased government spending, inventory restocking, better banking liquidity, and robust earnings.

  • Unemployment: We assign a greater than 80% 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 debt service ratios consuming too much of the consumers’ budget.
  • Fiscal Policy: We expect fiscal policy to remain stimulative for the foreseeable future with the Treasury General Account having close to $1 trillion to spend, which will also improve liquidity in the banking system. [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 May 2nd, 2024-May 9th, 2024

*YTD is Jan 2nd, 2024-May 9th, 2024

By: Nick Colletta, CFA, CAIA

Sources:

  1. https://www.morningstar.com/
  2. Google’s AlphaFold 3 AI Platform Will Revolutionize Medicine (techreport.com)
  3. Death Toll From Floods in Brazil Hits 113 as Rain Returns (usnews.com)
  4. US Consumer Sentiment Drops to 6-Month Low on Inflation, Unemployment Fears (usnews.com)
  5. Businesses continue to struggle with high prices and interest rates | Federal Reserve Bank of Minneapolis (minneapolisfed.org)
  6. Liabilities and Capital: Liabilities: Deposits with F.R. Banks, Other Than Reserve Balances: U.S. Treasury, General Account: Week Average (WTREGEN) | 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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