Market Update – May 13th, 2024

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Author: Joe Maas, Synergy Asset Management

Monday, May 13th, 2024

Financial Markets

Last week was quiet but positive for markets, as investors await key inflationary data this week. As of close on Friday, May 10th, the Dow Jones Industrial Average rose +2.16%, the S&P 500 climbed +1.85%, and the Nasdaq Composite increased by +1.14%, inching closer to all-time highs. The Barclays Aggregate Bond Index was muted with a slight uptick of +0.05%.

Market News

Inflation Expectations. The inflation prints this week will likely either dampen bullish market spirits or propel stocks closer to notching more all-time highs, with the PPI on Tuesday and the CPI on Wednesday. According to the Federal Reserve Bank of Cleveland, CPI for the month of April is expected to be 3.5%, flat from March, while Core CPI is expected to see a slight downtick from March at 3.7% in April. Later on in May, April’s PCE inflation is expected to clock in at 2.7%.

A lower-than-expected inflation figure would likely bolster bullish sentiment, potentially bringing a Federal Reserve rate cut closer to fruition. On the other hand, if the CPI exceeds 3.5%, it could trigger a sell-off this week. Preceding the CPI print on Wednesday is the Producer Price Index, which will also be helpful to markets in understanding current inflationary pressures.

Source: Federal Reserve Bank of Cleveland

Consumer Credit. Consumer credit data for March revealed that outstanding consumer credit saw a +1.5% uptick from the previous year but a slight dip of -0.34% compared to the last quarter. Notably, revolving credit, encompassing credit cards and personal lines of credit, experienced a mere +0.1% year-over-year increase in March, while nonrevolving credit, covering loans for larger purchases such as automobiles, saw a more substantial +2.0% rise year-over-year, however both remain below the average annual increases seen in recent years.

At the close of the first quarter, average loan rates stood as follows: 8.22% for a 60-month new car loan, 21.59% for credit cards, and 12.49% for personal loans. These rates will likely continue to stay elevated until the Federal Reserve cuts their key rate. Other variables at play in the consumer credit dynamics include student loan debt forgiveness programs, consumer expectations of economic conditions, inflationary pressures, and a host of other factors.

Consumer Sentiment. May’s consumer sentiment took an unexpected downturn as the University of Michigan’s Consumer Sentiment Index came in -11.3% below estimates at 67.4, plunging -12.7% from April’s figures after a streak of relatively stagnant readings over the previous three months.

This abrupt shift in sentiment reflects growing concerns among consumers, who previously may have held back judgment. Worries about inflation, unemployment, and interest rates escalated in May. In fact, consumers reported that they expect the unemployment rate to rise as much as 130 bps in the next year, which would bring unemployment from April’s 3.9% to 5.2% a year from now.

Year-ahead inflation expectations climbed from 3.2% in April to 3.5% in May’s report, indicating heightened unease among consumers regarding future economic conditions. Although consumer expectations frequently differ from actual outcomes, monitoring them supports our ongoing analysis of markets.

Initial Claims. Weekly initial claims surged to an eight-month high, surpassing
expectations by 7.9%, with 231,000 new unemployment claims reported for the
week ending May 4th. This coincides with multiple consumer surveys indicating
a decline in confidence regarding the labor market, including this week’s
Consumer Confidence Index from the University of Michigan.

Additionally, the one-year percentage change in unemployment has been on an upward trend, a leading indicator of employment conditions that may suggest a bumpy road ahead. While the consensus suggests that the labor market is unlikely to strengthen significantly in the near term, there is uncertainty about whether unemployment will remain stable within a healthy range or unexpectedly trend upward in the coming months.

Source: Department of Labor

Q1 Earnings. The final of the five major S&P 500 reporting weeks for first-quarter earnings concluded this week, providing insights into the US economy. 92% of the S&P 500 has reported Q1 earnings, posting an annual earnings growth rate of 4.1% across the index. Consumer discretionary saw the biggest year on year earnings growth of +35.8%, closely followed by communication services which saw earnings up +35.0%, and utilities which saw earnings up +32.8%.

On the other hand, healthcare suffered the steepest decline in earnings, plummeting by 26.1% compared to the previous year, alongside energy which saw earnings down -22.4% and materials which saw earnings down -20.5% YoY. Despite overall strength in earnings, particularly among large-cap entities like Apple and Google, earnings varied largely by industry.

Source: Fundstrat

Summary

Markets remained cautiously optimistic last week as investors await crucial CPI and PPI data this week. Q1 2024 consumer credit data indicated a slight uptick in outstanding debt compared to a year ago, however it declined slightly from Q4 2023. May brought an unexpected dip in consumer sentiment, driven by worries surrounding inflation and unemployment. Weekly initial claims spiked to an eight-month high, highlighting a cooling labor market. As the first quarter earnings season winds down, the S&P 500 is posting 4.1% YoY earnings growth, with mixed performance across sectors.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA
The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.