Insights Weekly Research Briefing
Moving trucks are getting active in London, Paris and possibly Washington D.C. as political parties on both sides of the Atlantic confront major changes.
Fifty percent of 2024 will be in the books by this weekend. As of now, the S&P 500 is up about 15% which is better than I (and many others) would have guessed six months ago. The economy has been stronger in this first half which has led to a reluctance by the Fed to cut the Fed Funds rate. Inflation has been sticker with core goods falling as expected, but housing has been sticky and insurance prices have been extreme like the weather that is influencing it.
The markets expect little action by the FOMC this week, especially given last week's strong job report. Investors will be sorting through Wednesday's meeting announcement and Fed Chair Powell's press conference, but all eyes are on the horizon for future Fed actions.
Higher for longer? Time to cut? Or maybe it's just time to suit up and go to the beach? While the discussions over economic strength and inflation continue, let me pour you an Aperol Spritz or maybe a Juicy Banger IPA because this could take some time. Hard economic data continues to come out fine while survey data looks less than fine. Consumers are enjoying their financial situation while they think their neighbor's situation is terrible
The pillars of support for the financial markets continue to grow. Last week's mild inflation data and another week of solid earnings led by Walmart gave investors another reason to add to their portfolios.
Time for another monthly inflation measure. April PPI drops on Tuesday and the CPI on Wednesday. Will housing prices continue to be stubborn in their retreat? Will auto insurance again surprise to the upside while the prices of the vehicles that they insure tumble lower?
What a good look for the Federal Reserve in the last week. U.S. Treasury yields fall 20 basis points, crude oil is back below $80, the S&P 500 VIX has fallen to a 13-handle and the major U.S. equity indexes have reclaimed their 50-day moving averages.
The markets dodged a coconut last week. The March PCE inflation statistic came in at +0.32% month over month which is higher than we wanted. But the markets digested the hot figure as corporate earnings were even stronger and many AI capital spending announcements were up in the clouds.
Will this month's rain bring May flowers? We will find out over the next two weeks as 2/3'rds of the S&P 500 will be reporting their earnings and outlooks. Without any relief from interest rates, inflation and the global political situation, it is going to take a stellar set of numbers from the market leading companies to return the indexes to their March highs.
Continued economic strength combined with last week's 'hot' CPI figures have sent Treasury yields 30-40 basis points higher over the last two weeks. Equity markets are fine with small doses of rising yields tied to economic upside, but more than that and stock prices begin to get a fear of heights.
While many await a slowdown, the U.S. economy laughs and shifts into a higher gear. Last week's surge came as a result of Friday's monthly jobs data which showed accelerating job production and tepid wage growth.
Joining the crocus in reaching for the sky last week were the equity markets which moved to new highs for the quarter end. Back-to-back double-digit percentage gains for the S&P 500 is not a frequent event and last happened in March of 2012.
We are so back that you can hear Mark Knopfler and Sting singing in the background... "Get your money for nothing. And your chicks for free."
The financial markets are also enjoying a multi-phase period of time where investors' appetite for assets is large, and companies are increasingly open to fixing balance sheets and transacting operational assets.