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Financial Market Update – Week of 04/08

April 8, 2024

Major U.S. stock indexes exhibited some volatility last week due to geopolitics and a Federal Open Market Committee (FOMC) member comment last Thursday. Hotter-than-expected headline labor market data on Friday propelled a partial reversal of Thursday’s lower close, but major-market equity indexes still closed lower for the week overall.

Tallying last week, the S&P 500 fell by 0.95%, the Nasdaq 100 declined by 0.80%, and the Dow Jones Industrial Average decreased by 2.27%.

Geopolitics, Fed

Last Thursday, on a call with Israeli Prime Minister Benjamin Netanyahu, President Biden pressured Israel to open more aid routes to Gaza and indicated that the U.S. would change its policy if Israel didn’t take steps to prevent civilian harm. The phone call added uncertainty to the overall macroeconomic backdrop.

At nearly the same time last Thursday, Neil Kashkari, President and CEO of the Federal Reserve Bank of Minneapolis and nonvoting FOMC member, commented on the possibility of no rate cuts this year in a LinkedIn live interview with Pensions and Investments magazine.

This “Thursday Double Whammy” wasn’t received with joy by the major U.S. stock market indexes, as they dropped on Thursday.

Headline Payrolls Strong

Top-line job gains for March were solid yet again, as the number showed 303,000 jobs created, massively beating the Dow Jones estimates for 200,000.

But hold the phone. The monthly jobs data is a 39-page report. Under the hood, we can see there is reason for scrutiny.

Under the Hood of Labor Market Data

Notably, part-time jobs spiked by 525,000 in March versus a 107,000 increase in February. This could mean that some jobs are being downgraded from full-time roles to part-time and/or many Americans are taking additional “side work” or gig jobs to absorb the persistently high cost of living. 

Data shows that full-time employment has gotten substantially lower over the last 12 months, a reinforcement that our work environments have changed (remote work, multiple part-time gigs, etc.).

Strength in the monthly jobs report was shown in increases of healthcare jobs (72,000), government jobs (71,0000), and leisure/hospitality (49,000). Recently, these labor market segments have been leading in job creation.

Unemployment declined to 3.8% from 3.9% last month.

Market Reaction

Like most major U.S. economic releases, the monthly jobs number drops at 8:30 a.m. While the cash stock market is not yet open, futures markets are trading at this time. 

Initially, and throughout most of last Friday’s session, major U.S. stock indexes rose moderately on the bullish-looking jobs number.

If this report had been released six months ago, major market indexes probably would have risen more on the monster 303,000 jobs print. However, it seemed that Thursday’s commentary from Kashkari and Middle Eastern tensions were still on the market’s mind on Friday.

Ten-Year Yields Rise

Ten-year note yields rose last week to begin the quarter, tacking on just over 17 basis points week-over-week, settling near 4.379% last Friday, the highest weekly closing level since November.

The benchmark 10-year yield declined last Thursday, while major U.S. equity indexes sold off on geopolitical tensions and Fed member Kashkari’s commentary. But Friday, bonds were sold (with yields up) on the heels of the payrolls report. 

Commodities

Raw commodity prices have been rising lately overall as consumers continue to contend with high prices of everything.

Energy: The energy sector found buyers in the first quarter. The second quarter began the same way, with the price of West Texas Intermediate (WTO) Crude Oil for May delivery climbing and settling near $86.91 per barrel last week.

Tensions in the Middle East are quite supportive of firm oil pricing, with some analysts looking for $90 WTI Crude in the near future.

It’s the spring driving season, and we can look for higher prices at the pump through Memorial Day. The average price for a gallon of regular unleaded gasoline nationwide was $3.598 as of Monday, April 8.

Gold: Zooming to all-time highs, gold has been on the rise for many reasons, due to the current time of geopolitical tensions and the “sound money” play amidst inflation uncertainty.

It’s not just rotisserie chickens! Costco has been in the news in recent weeks, with members buying up gold bars and silver coins.

The challenge with buying physical gold and silver is the “premium,” or the dollars above the spot price for the metal. For example, if spot gold is $2,300, a one-ounce gold bar may retail for $2,400. So, investors need the market to move their way by 4% to 5% to achieve breakeven. Liquidity is also not as simple as buying or selling an ETF.

Spot gold was higher by approximately 5% last week and closed the week near $2,330 per troy ounce.

Food & Agriculture: Cocoa prices have risen enormously in recent weeks and months. Other agricultural prices have risen, too. 

One way to monitor or invest in agriculture outside of futures contracts is via the Invesco DB Agriculture Fund (DBA) ETF. This ETF holds cocoa, coffee, soybeans, corn, wheat, sugar, and more.

DBA tacked on 1.13% last week, not the best news for folks looking for lower prices at the grocery store.

Nascent Volatility?

Market volatility has been notably suppressed since last October. Since then, we have experienced a steady rise in the S&P 500 and an overall decline in Treasury yields.

Last week gave a hint of market volatility. The lately-forgotten-about Volatility Index got a bump last Thursday, resulting in the highest weekly close since October. S&P 500 options volatility remains at subdued levels (sub-20) as of Friday’s market close. 

Narratives Change, Long-Term Investors Remain Steadfast

The first week of the second quarter indeed felt different from the overall market environment that we saw during and through the end of the first quarter. 

This new narrative is still not completely clear. But here is what we know: it’s an election year, inflation is persistent, and the Fed’s next move is an unknown. In addition, geopolitical tensions may escalate in the coming days.

What will the Fed do next? What about interest rates and inflation?

For clues this week, attention turns to March Consumer Price Index (CPI) inflation data on Wednesday. The most recent CPI report for February showed a 3.2% year-over-year increase.

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