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Financial Market Update – Week of 04/29

April 29, 2024

Overall, last week featured a battle between weak economic data and strong earnings results from megacap tech companies, with the latter coming out on top.

Tallying the week, the S&P 500 rose by 2.67%, the Nasdaq 100 climbed by 3.99%, and the Dow Jones Industrial Average increased by 0.67%.

Mecacap Tech Earnings Lead

It was a big week for the S&P 500 and Nasdaq 100, as their three-week declines were snapped, courtesy of megacap Tech rallying. Strong tech company earnings won the battle last week versus more sticky inflation and sluggish economic data.

Megacap tech continues to ramp up their AI spending, and stocks like NVIDIA were big beneficiaries of the AI capital investment last week.

GDP Data “Major Slowing”

Overshadowed by monster tech earnings last week was gross domestic product (GDP) data, showing GDP growing at just a 1.6% annualized growth rate in Q1 —  well below expectations of 2.4%.

The data, released last Thursday, sent major U.S. stock indexes reeling lower before they were rescued, counterbalanced by bullish tech earnings after the bell.

Included in the report was the headline Personal Consumption Expenditures index (The Federal Reserve likes to follow Core PCE).  This release showed a 3.4% quarter-over-quarter increase in Q1 after just a 1.8% increase in Q4 of last year. Yikes.

This translated into a double whammy of economic data: persisting inflation and slowing U.S. GDP.

More Sticky Inflation Data

While earnings were in the spotlight for most of the week (and that is always nice to see!), Core PCE also came in warmer than expected on Friday, showing the Fed’s preferred gauge of inflation rising by 2.8% in March. This figure was higher than the 2.7% expected and is still far away from the Fed’s 2% inflation target.

Markets weren’t too consumed with the Core PCE data released last Friday, as stock index futures were rising overnight heading into Friday morning on the heels of Microsoft and Alphabet (Google) results on Thursday afternoon.

However, folks are talking about the sticky inflationary pressures continuing to cloud the overall macro backdrop as stagflation has inevitably become a key talking point.

Treasury Yields Rise

U.S. Treasury yields rose for the fourth consecutive week, with tens closing the week near 4.668%, a gain of around 5.2 bps on the week.

Twos were on investors’ minds last week, as the 2-year yield briefly traded above the psychologically critical 5.00% level and settled right at the 5.00% level last week.

Higher Treasury yields are tied to higher borrowing costs for consumers, namely for mortgage loans.

Fed Rate Decision

It’s Fed week, with the Fed policy rate decision coming on Wednesday at 2 p.m. EDT.

As of last week’s market close, expectations show a high probability of the Fed leaving rates unchanged at the May meeting.

It is worth noting that a 25 basis point cut probability sits at 2.4% as of last Friday’s market close versus a 5.4% chance a week prior.

What a time for the Fed, markets, and yields this week, as earnings season continues to develop.

Narratives Change, Long-Term Investors Remain Disciplined

It is a big week for the markets, with consumer confidence data on Tuesday, Fed statement/subsequent commentary on Wednesday, and the monthly employment numbers on Friday. All the while, we will get a flood of earnings reports from giants.

We saw the volatile earnings trend continuing last week: disappointment was punished heavily, and good results or outlooks were heavily rewarded. Earnings volatility is present and creating opportunities just about daily right now.

It seems that fund flows could continue to be heavy into tech juggernauts as interest rates have risen in recent weeks, and inflation is showing signs of continuing persistence.

For long-term investors, we like to be in a position of strength and discipline by creating and adhering to a long-term plan for success versus reacting to short-term narrative shifts and outlooks. Some of the best long-term investors scale into positions using dollar-cost-averaging on pullbacks. This type of mentality could be more beneficial than usual right now, given the current confluence of economic data and corporate earnings.


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