Market Recap – May 17, 2024

 

Summary:

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

Markets moved a leg higher this week after inflation showed signs of stabilizing, rather than reaccelerating.  Interest rate sensitive small caps led the way while bonds moved closer to positive year-to-date territory as long-term interest rates dropped.  International stocks continue to do well due to China’s stock market rebound. [1]

  • Walmart Earnings: Walmart Inc. (NYSE: WMT), the largest employer in the U.S., reports strong Q1 results with increased revenue and operating income. eCommerce penetration rose globally, driven by store-fulfilled pickup, delivery, and marketplace services. The company observed that higher-income earners are shopping more for groceries and spending less on discretionary items, with an overall increase in spending on staples. [2]
  • CPI Inflation: Headline CPI increased by 0.3% in April, below the expected 0.4%, resulting in a 3.4% year-over-year rise, down from 3.5% last month. Core CPI met expectations with a 0.3% monthly increase, bringing the year-over-year rate to 3.6%, down from 3.8%. Lower prices for new vehicles and used cars contributed to the decrease, but inflation remains persistent in areas like shelter, medical services, and transportation services. [3]
  • Retail Sales: Advance estimates of U.S. retail and food services sales for April 2024 were $705.2 billion, unchanged from March but up 3.0% from April 2023. Sales from February to April 2024 rose 3.0% compared to the same period last year. Excluding auto sales, there was a 0.2% monthly increase, highlighting a struggling auto market, as confirmed by the inflation report and rising auto delinquencies.[4]

Chart of the Week:

Economic Outlook:

Summary: 

Recent economic indicators, including labor markets, purchasing manager indices, retail sales 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.  Atlanta Fed GDPNow real GDP estimate for Q2 of 2024 is currently 3.6%. [5]

  • 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. [6]
  • 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. [7]
  • 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 months at higher interest rates. [8]

*Dow Jones is price return

*SP500 is price return

*NASDAQ is price return

*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 9th, 2024-May 16th, 2024

*YTD is Jan 2nd, 2024-May 16th, 2024

By: Nick Colletta, CFA, CAIA

Sources:

  1. https://www.morningstar.com/
  2. Earnings Release (FY25 Q1) (walmart.com)
  3. Consumer Price Index – April 2024 (bls.gov)
  4. Monthly Retail Trade – Sales Report (census.gov)
  5. GDPNow – Federal Reserve Bank of Atlanta (atlantafed.org)
  6. Businesses continue to struggle with high prices and interest rates | Federal Reserve Bank of Minneapolis (minneapolisfed.org)
  7. 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)
  8. U.S. corporate borrowers face looming maturity cliff as funding costs reach 13-year high, Moody’s says – MarketWatch

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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