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Weekly Market Update for April 12, 2024

by Jared Plotz, Director of Research

After the markets’ early year run up on the backs of AI optimism and the prospect of lower interest rates, indices may be entering a choppier period until the Federal Reserve actually begins to cut benchmark rates. Shifting expectations regarding the timing and magnitude of such cuts in 2024 may move markets up and down. With another month of “hotter” inflation metrics, the consensus of investors has moved to just two 25-basis point rate cuts in 2024, down from three previously, with the first expected to come later (July or September). The S&P 500 rose 1.7% in January, 5.3% in February, and 3.2% in March, but is down about 2.5% in April thus far. Likewise, fixed income securities, following a strong start, have moved sideways the past few weeks as we wait on the Fed.

This week brought additional inflation readings. The consumer price index (CPI) for March rose 3.5% from a year ago, a faster pace than the 3.2% rise in February. The producer equivalent (PPI) rose 2.1%, also a quicker pace than the prior month. Meanwhile, manufacturing data moved back into “expansionary” territory, with new orders growing once again. Weak investor demand for longer-term Treasury bonds has exacerbated these higher readings, with the 10-year Treasury yield rising ~40bps (to 4.52%) in recent weeks. The economy continues to hum along better than expected, making the Fed’s job trickier. Nonetheless, we believe rate cuts are necessary and coming.

Housing can also be tricky with inflation. Though restrictive benchmark rates are supposed to bring down overall inflation and slow the economy, they also make mortgages more expensive and current homeowners less likely to move. This reduces homes available for sale and thus pushes home prices up further. Home prices are up ~6% over the past year and represent a considerable portion of weight in inflation indices.

Bank earnings kicked off the corporate reporting season today. JPM said consumers remain financially healthy, supported by the resilient labor market; however, excess cash reserves have normalized, leading to slightly higher delinquencies among lower-income cohorts. Despite a strong Q1, JPM’s stock declined after their 2024 guidance wasn’t raised. Though Wells Fargo & Citigroup also maintained full-year guidance, their stock moves were more muted. Next week, we will hear reports from UnitedHealth Group, a large equity portfolio position that has been facing some difficulties of late, as well as from additional banks, healthcare, and transport companies.

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