May 6, 2024

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

 Warren Buffett

Well, last week gave us quite a ride, anticipation for the Federal Reserve and the inflation numbers moved the market midweek and recovered nicely by Friday. Here are the numbers: the S&P 500 gained .27%, the Dow Jones Industrial Average led advancing 1.02%, the Nasdaq added .93%. Internationally the FTSE 100 had a good week up .90% and the MSCI-EAFE added 1.2%. The 2-year yield closed at about where it started at 4.805% and the 10-year finished paying 4.498%.

The market was looking at some key economic numbers and the plethora of earnings last week.

As MarketWatch observed, U.S. stocks closed out April with a whimper as the three major benchmark indexes suffered their worst monthly point and percentage decline of 2024. As growing concerns surrounding rising inflation and the resulting hawkish sentiment from the Fed led to market jitters, U.S. equities tumbled in April, with the S&P 500® down 4%. Mid and small-caps fared worse than their large-cap peers, with the S&P MidCap 400® and the S&P SmallCap 600® both down 6%.

However, U.S. stocks have swung to an upbeat start in May, with Wall Street’s “fear gauge” easing to its lowest level since the end of March as investor anxieties tied to inflation appeared to subside. All three major U.S. equities indexes finished sharply higher last Friday, with the S&P 500 SPX and the technology-heavy Nasdaq Composite COMP logging back-to-back weekly gains, while the Dow Jones Industrial Average DJIA climbed a third straight week. The Dow saw its largest weekly rise since the stretch ending March 22, according to Dow Jones Market Data.

Overall, though, earnings season is going well. With about three-fourths of S&P 500 companies having reported first-quarter results so far, 77% have beaten earnings estimates. That’s well above the typical 67% beat rate. Apple pulled off some nice surprises for investors. As Barrons Alex Eule notes, “It’s hard to miss that Apple has been a notable laggard among stocks this year. The Big Tech titan was down 10% in 2024 heading into tonight’s earnings report, which made the results a must watch. Sure enough, things weren’t quite as bad as everyone expected. Apple’s sales are still falling, down 4% from a year ago, but not quite as much as Wall Street feared.” This was coupled with a timely stock buyback, which happily saw Apple shares jump 7% in one day.

On the jobs front, MarketWatch reported, the government on Friday said the economy created just 175,000 new jobs.  Unemployment rose a tick to 3.9%.  Economists polled by the Wall Street Journal had forecast a gain of 183,000. ADP said most of the new jobs were created at big and medium-sized companies. Small-business employment lagged behind.

The number of Americans who applied for unemployment benefits last week barely rose to 208,000, indicating that layoffs remain at extremely low levels associated with a sound economy. Jobless claims have hovered between 194,000 and 225,000 this year, a remarkably low level last achieved consistently in the 1960s when the population was much smaller. New jobless claims fell in 36 of the 53 states and territories that report these figures to the federal government. Claims rose in 17 other states, but the increases were small.

Big day last Wednesday as the Federal Reserve met and the officials so far, continued position in 2024, indicating “on hold” is exactly where they want to be. The Federal Reserve remains in a wait-and-see mode after a bumpy start to 2024 on the inflation front. Chairman Jerome Powell and other officials have said that they need more confidence that inflation is sustainably trending toward the Fed’s 2% annual target before considering changing interest rates. Members of the Federal Open Market Committee voted unanimously today to keep interest rates steady, as widely expected by markets and economists—the FOMC has held the federal-funds rate at a target range of 5.25% to 5.50% since July 2023.  Further, the central bank, as they held interest rates steady, announced plans to slow the pace of its balance-sheet reduction, and left maximum flexibility for its next moves. Fed chair Jerome Powell delivered his post-Fed meeting press conference in the midafternoon and refused to give any guidance giving Wall Street what seemed like a broken record report.

With the Feds actions and mortgage rates near or over 7%, is it any surprise that the real estate market has had its challenges?  Online real-estate listing service Zillow Group Inc. on Wednesday forecast second-quarter sales that were below expectations, as a stalled housing market weighs on first-time homebuyer demand and pushes some real-estate agents to the sidelines.

Some good news at the pump? Oil futures finished lower Friday, with easing concerns over potential supply disruptions in the Middle East, strong U.S. production and signs of slowing demand prompting prices to register their largest weekly percentage loss since early February. Will there be some relief during the summer driving season which starts Memorial Day weekend? We shall see.

Most of you have noticed that we have been moving more into intermediate bonds where appropriate. While cash has provided income temporarily during the Fed’s recent tightening cycle, over the long-term, in normal, upward-sloping yield curve environments, longer-dated instruments can provide more income to a portfolio.

We are beginning to move ahead of announced changes in Fed policy rates, incrementally stepping out of cash, and increasing fixed income exposure by getting back into bonds. History shows that when the U.S. central bank pivots from a hiking cycle to an easing one, bond markets have tended to do well in the pause period.

Mike