Market Update

Geopolitical tensions and strong US retail sales data prompted a pullback in stocks lasts week, as the Nasdaq Composite and S&P 500 declined, and the Dow Jones Industrial Average rose slightly on UNH’s strong quarterly earnings report. March’s retail sales exceeded expectations, sending expectations of the Fed’s first rate cut further into the second half of the year.

Geopolitical tensions and strong US retail sales data prompted a pullback in stocks lasts week, as the Nasdaq Composite and S&P 500 declined, and the Dow Jones Industrial Average rose slightly on UNH’s strong quarterly earnings report. March’s retail sales exceeded expectation, sending expectations of the Fed’s first rate cut further into the second half of the year. T

As of the end of Q1 2024, we have observed 35 bullish factors in the economic cycle and 14 bearish factors, resulting in a bullish score of 71.4% and a bearish score of 28.6%. Regarding our position within the economic cycle, we believe we may be near a midpoint, indicating potential for further economic growth while also acknowledging the possibility of a downturn ahead.

Despite a Friday boost from better than expected job gains in the US, last week saw stocks pull back. Nonfarm payrolls rose by +303,000 in March, dropping unemployment to 3.8%. The ISM Manufacturing Index turned positive after 16 months of contraction, and the ISM Services Index also showed growth in the service sector in March. Consumer credit data from January increased debt usage, with rising credit card delinquency rates. Apple announced its first round of layoffs in California, breaking its trend of avoiding mass layoffs seen in 2022 and 2023 among most other technology companies.

February personal income rose +0.3%, while spending rose +0.8%, leading the personal savings rate to drop to 3.6%. New home prices dropped by -3.5% from January, nearing bear market territory from the peak of new home prices in 2021. Durable goods orders increased modestly by +1.4%, but downward revisions in January underscored challenges in the manufacturing sector. Consumer confidence remained stable in March. Upward revisions in real GDP and consumer sentiment data provided positive surprises, indicating a resilient US economy.

Last week, market sentiment remained bullish as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all reached record highs following the Federal Reserve meeting on Wednesday. The March Fed meeting and updated Summary of Economic Projections brought minimal surprises, prompting a rally in stocks on Wednesday afternoon following the press conference. Existing home sales also saw a notable surge in February, while the highly anticipated Reddit IPO debuted on Thursday last week, raising approximately $750 million from the offering.

February’s Consumer Price Index slightly exceeded expectations, with headline CPI at 3.2% and core CPI at 3.8%. Behind the increase, energy and shelter costs primarily drove the rise in prices. Additionally, the Producer Price Index showed goods inflation surpassing service inflation, marking a shift from previous trends. February’s retail sales fell short of expectations, although did show a modest overall increase and strong growth in online shopping and food services. Consumer sentiment slightly declined in March, with respondents largely pointing to feelings of economic uncertainty with the upcoming presidential election.

Last week, equities slipped amidst mixed signals from the US job market. February’s nonfarm payroll report exceeded expectations with the addition of +275,000 jobs, yet the unemployment rate unexpectedly rose to 3.9%. The ISM Manufacturing Index indicated the 16th consecutive month of contraction in the sector, while the ISM Services Index showed continued resilience. Consumer credit rose in January, particularly revolving credit, raising concerns about increased debt reliance.

Equities continued to rally last week, fueled by January’s PCE inflation data showing headline inflation at 2.4% YoY, propelling major indexes to new all-time highs, with both the S&P 500 and the Nasdaq Composite reaching record levels. Additionally, personal income rose while spending declined, leading to a slight increase in the savings rate. Durable goods orders fell by -6.1%, mainly due to a drop in transportation. February’s Consumer Confidence Index unexpectedly dropped by -3.8%. Meanwhile, Bitcoin rallied to over $60,000, driven by anticipation of the upcoming halving event in April 2024.

The S&P 500 and Dow Jones closed at record highs last Friday, ushered in by Nvidia’s impressive earnings report, while economic indicators such as January’s Leading Economic Index reflected a bearish tone ahead and existing home sales demonstrate a slower, more historically normal market. Additionally, Amazon has officially joined the Dow Jones Industrial Average, marking a notable accomplishment for the ecommerce giant. Panning back and looking holistically at the state of the US economy and the Fed’s potential next steps, investors are expecting a rate cut by the June FOMC meeting.