April Showers to May Flowers?

Last week saw a reversal of the pain US Equities have been feeling, with a much-wanted mid-earnings-season rebound. The rebound was driven by Tech and mega-caps showing some strong earnings reports and a blended earnings growth rate in line with expectations. As we move into the month end and the second half of earnings season, the question becomes whether or not there is enough fuel to keep going?

In economic prints, April ended with some showers, as consumer confidence dipped to 97.0 from 103.1, indicating a weakening and slightly pessimistic outlook by consumers. The print contrasted expectations for a slight bump to 104. Further, Chicago PMI came in at 37.9, a dip down from 45.0 in March and firmly in the sub-50 territory, indicating businesses have a negative outlook on the economy. Initial and continuing unemployment claims were unchanged week over week at 208k and 1,774k, respectively. Employment came in on the FOMC’s coattails Friday and showed some weakening. Hourly Earnings1 were softer at 0.2%, down from 0.35% in March, and the average workweek2 fell from 34.4 hours to 34.3 hours. Lastly, nonfarm payrolls2 strongly dipped to 175k from 315k in March. As wage growth slows, workweeks shrink, and hiring contracts, it appears cracks may be starting to appear in employment?

Weekly Performance

Data Source: Factset®        Performance Period:      4/29/2024    5/3/2024

Despite both consumers and businesses being pessimistic, the May FOMC meeting left rate expectations unchanged between 5.25% and 5.50%. Powell, on one hand, noted the lack of progress of inflation, but he indicated that the next policy move is unlikely to be a rate hike. Fed talking points included the continued inflationary pressures in housing prices and the supply chain. The Fed remains data driven. As the Fed watches inflation and employment with the view of holding rates higher for longer than initially expected, it is still likely that we’ll see cuts this year, even if the cuts are insubstantial.

This week, we’ll see consumer credit reporting results. The strength of consumer demand, even though wages are struggling against inflation, might still come down to what can one spend and not what can one afford. The difference in those questions continues to rest on available credit versus available savings – an unsustainable answer.

Markets remain fickle and hopeful that the dreary weather of April will expedite a Fed response. Next week will give us one last look at news that could drive policy, as PPI and CPI will be released. As we wait, there is still a lot to digest from last week. Meanwhile, the weather and the markets continue their march towards summer, for “(a)s long as the earth endures, seedtime and harvest, cold and heat, summer and winter, and day and night will never cease.” Genesis 8:22

1. Seasonally Adjusted, Month over Month
2. Seasonally Adjusted

Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights

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