Market Recap – May 3, 2024

 

Summary:

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

Interest rate-sensitive assets moved higher this week as the Federal Reserve took rate hikes off the table. International stocks also advanced, with Chinese stocks entering bull market territory—20% higher than bear market lows—due to stronger economic indicators and excitement about domestic artificial intelligence firms. [1]

  • Federal Reserve Meeting: Federal Reserve Chairman Jerome Powell effectively took rate hikes off the table for 2024. He also announced that the Fed would taper its balance sheet runoff from $60 billion of Treasuries maturing per month to $25 billion. Both announcements were dovish and moved markets higher. [2]
  • Apple Earnings Beat: Apple beat revenue and earnings estimates on Thursday, with sales in China falling less than predicted. They also initiated the largest corporate share buyback in history at $110 billion. Finally, they teased the release of their artificial intelligence strategy, which is causing optimism around the stock. [3]
  • ISM Reports: The US ISM Manufacturing PMI was reported in contractionary territory at 49.2, compared to the expected 50.0.  The US ISM Services PMI also entered contractionary territory at 49.4, versus the anticipated 52.0.  Both indices serve as leading indicators for GDP, and their concurrent downturn may indicate that higher interest rates are slowing business activity. [4][5]

Chart of the Week:

Source: Joe Little, HSBC Asset Management

Economic Outlook:

  • 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]
  • 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.
  • Short-Term Interest Rates: We put the odds of any rate cut before September of 2024 at less than 25%. Goods inflation has reaccelerated as services inflation has remained sticky.

*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 26th, 2024-May 2nd, 2024

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

By: Nick Colletta, CFA, CAIA

Sources:

  1. https://www.morningstar.com/
  2. https://www.reuters.com/markets/us/fed-announces-reduction-balance-sheet-runoff-pace-2024-05-01/
  3. https://www.cnbc.com/2024/05/03/apple-stock-on-pace-for-best-day-since-2022-after-earnings-beat.html
  4. https://www.fxstreet.com/news/us-ism-manufacturing-pmi-drops-to-492-in-april-vs-500-expected-202405011406
  5. https://www.prnewswire.com/news-releases/services-pmi-at-49-4-april-2024-services-ism-report-on-business-302134930.html

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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