Market Update – April 8th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, April 8th, 2024

Financial Markets

Stocks finished down last week despite a rally on Friday from the unexpectedly strong March jobs report. As of the market close on Friday, April 5th, the Dow Jones Industrial Average dropped by -2.3% for the week, the S&P 500 by -0.95%, the Nasdaq Composite by -0.8%, and the Barclays Aggregate Bond Index by -1.3%.

Market News

March Job Gains. Friday’s jobs report surprised economists to the upside, as the US labor market continues to demonstrate growth. Total nonfarm payroll employment jumped by +303,000 in March, considerably higher than the anticipated +195,000. The unemployment rate fell slightly from February to 3.8% in March, better than economists’ expectations of 3.9%. Average hourly earnings met expectations with a monthly increase of +0.3%.

Since August of 2023, the unemployment rate has posted within a narrow range of 3.7% – 3.9% and monthly job gains have remained robust. Consequently, the consistently strong job reports may push Fed rate cuts further into the summer and possibly into fall, as the Fed deals with a US economy stronger than most would have expected this far into a quantitative tightening cycle.

ISM Manufacturing Breaks Contractionary Trend

The ISM Manufacturing Index for March surpassed expectations, clocking in at 50.3, up by 2.5 from February’s index. This marks a significant shift as it denotes the first month of expansion in the manufacturing sector after experiencing 16 consecutive months of contraction (readings under 50).

Within the ISM composite index, the new order index rose to 51.4 and the production index rose to 54.6. Additionally, the prices index saw a rise to 55.8, while backlogs remained steady at 46.3. The employment index also showed a slight improvement from February, reaching 47.4. These indicators collectively suggest a possible turnaround from the sluggishness we’ve seen in the manufacturing sector for more than a year.

ISM Services

The ISM Services Index for March reported slightly below-expected results but remained positive at 51.4, indicating continued growth in the services sector. This marks the 15th consecutive month of expansion in the sector, with growth in 45 out of the last 46 months, with only one contraction occurring in December 2022. Only four of the sixteen service sectors experienced a decline in March, including Mining, Transportation & Warehousing, Real Estate, Rental & Leasing, and Information. Overall, services remain a robust pillar of the US economy, contributing significantly to its overall strength and GDP growth.

Consumer Credit

In the first month of 2024, consumer credit outstanding exhibited a year-over-year increase of +4.7%. Revolving credit, which encompasses shorter-term borrowing methods like personal lines of credit and credit cards, surged by +7.6% compared to January of the previous year. On the other hand, nonrevolving credit, which includes loans for big ticket purchases such as homes, cars, or education, experienced a more modest rise of +3.6% over the same period.

These upward trends in consumer credit usage coincide with other concerning indicators regarding household finances. One study revealed that in 2023, 49% of credit cardholders carried debt from month to month, a notable increase from 39% in 2021 (Bankrate).

Additionally, credit card delinquency rates have been on the rise since reaching a low in 2021. As of Q4 2023, delinquency rates have climbed to their highest level since Q4 of 2011, not yet near recessionary levels but indicating a worrisome upward trend. There continues to be a disparity between stocks hitting all time highs and the everyday economic challenges faced by lower- and middle-class Americans dealing with heavy debt loads.

Apple Layoffs

Apple is reducing its workforce by 614 positions in California, following the cancellation of a significant project focused on electric, self-driving cars. While the specific projects affected by the layoffs remain undisclosed, the terminated positions are predominantly from smaller satellite offices, many of which operate in Apple’s “special projects group”. This marks Apple’s first round of layoffs since the onset of the COVID-19 pandemic, underscoring the company’s cautious approach to hiring and firing. In contrast to other technology firms, which experienced waves of over hiring followed by rapid layoffs in 2023, Apple has been more prudent in its workforce planning.

Although tech layoffs in Q1 2024 were notably lower compared to Q1 2023, they persist, particularly in speculative projects with limited monetization, like Apple’s EV unit. Despite this news of layoffs often hitting headlines, the broader economic impact has been minimal, with unemployment low and the US economy adding +303,000 jobs in March.

Summary

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.

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.