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J. J. Wenrich CFP®

Weekly Market Performance — April 26, 2024

Markets Blog

David Matzko, LPL Research


Weekly Market Performance for the week of April 22, 2024. The S&P 500 bounced back this week, erasing most losses from the previous week. Strong earnings reports from a handful of mega cap names fueled the rise, pushing the index back up towards 5,100. All sectors gained ground, with technology leading the way with a jump of over 5%. Some of this positive sentiment has spread to global markets as well. Hong Kong's Hang Seng surged over 8% for the week, and the U.K.'s FTSE index reached a new record high. The Bloomberg Aggregate Bond Index sank to its lowest point in five months, before recovering some lost ground at the end of the week. Two-year Treasuries continue to probe the psychologically significant 5% yield level, with the move driven by inflation concerns delaying potential interest rate cuts by the Federal Reserve (Fed). Investors will be closely watching upcoming events in the week ahead as the Treasury Quarterly Refunding Announcement, the Fed meeting, and the jobs report, all could significantly impact the near-term direction of the rates markets.


Index Performance


U.S. and International Equities


U.S. Equities: The S&P 500 was nicely higher this week as mostly well-received earnings results helped offset Thursday's losses after the Q1 GDP report disappointed. Friday’s in-line personal consumption expenditures (PCE) deflator report likely played a role in the market’s more than 1% rally on Friday to finish the week up nearly 3%. The earnings stars of the week — at least among the mega cap companies — were Alphabet (GOOG/L), whose shares surged nearly 10% on Friday after its results soundly beat expectations and the search giant announced its first-ever dividend, and Telsa (TSLA), which rallied 14% for the week on its surprisingly aggressive plans for a low-cost vehicle. 


Microsoft’s (MSFT) numbers were also well-received and helped offset the high-profile disappointment from Meta (META), which announced more AI-related capital investment than investors had anticipated. But that extra technology capital spending created enthusiasm for NVIDIA (NVDA), which won't report earnings until late next month but jumped more than 14% for the week and propelled the technology sector to the top of the weekly sector rankings. The AI spending craze also drove Super Micro Computer (SMCI) up nearly 20% for the week. All sectors rose, but materials and healthcare were the biggest weekly laggards. 


International Equities: The strong performance from U.S. technology companies made it difficult for international equities to keep up. Major international markets rose, but only China was able to keep up. Markets have been attracted to cheap valuations and depressed sentiment in China, while getting more comfortable with geopolitical threats, at least for now. Japanese markets rose but underperformed after the Bank of Japan held its monetary policy unchanged and did little to arrest the decline in the yen. A Japanese currency intervention is widely anticipated, but the decision depends more on the pace of any future decline rather than holding an absolute level, and U.S. monetary policy moves will be factored into that decision and may delay action. 


Fixed Income: The Bloomberg Aggregate Bond Index was little changed on the week but did briefly fall to its lowest level in five months before bouncing to end well off its worst levels. Notably, 2-Year Treasury yields traded to a new high for the year at 5.02% following another problematic inflation data point on Thursday that pushed further out the timing and scope of potential Fed rate cuts. Looking ahead, next week’s Treasury Quarterly Refunding Announcement (QRA), Federal Open Market Committee (FOMC) meeting, and April employment report are all expected to be important catalysts in gauging the near-term path for the bond market.       


With inflationary pressures running hotter than the Federal Reserve’s (Fed) 2% target, nominal Treasury bonds continue to come under pressure as the prospects of rate cuts get priced out. While still under pressure from market re-pricing, TIPS (Treasury Inflation-Protected Securities) may be worth exploring as a hedge against stubborn inflationary pressures. TIPS are Treasury securities with principal and interest payments that are adjusted for inflation. Unlike other Treasury securities, where the principal is fixed, the principal of a TIPS can go up or down over its term. Since these securities are government-guaranteed, TIPS investors who hold the individual bonds to maturity receive, at a minimum, the original investment back plus coupons (paid semiannually) but could get more than the original investment if inflation surprises to the upside. One of the key metrics to determine if/when it makes sense to own TIPS versus just owning comparable maturity nominal Treasuries is the “breakeven” rate, or the difference in yields between the two securities, which is also the market’s best guess about what inflation will average over the maturity of those securities. Currently, breakevens remain relatively contained, so the bar to allocate to TIPS, particularly relative to nominal Treasuries, remains fairly low. 


Commodities: The broader commodities complex traded modestly lower this week amid a mixed bag of performance. Strength in the energy complex offset selling pressure across the metals market. West Texas Intermediate (WTI) rose nearly 2% after finding support off the 50-day moving average. A larger-than-expected weekly inventory drawdown counterbalanced demand concerns stemming from a higher-for-longer monetary policy backdrop. The futures curve remains in backwardation, adding to the evidence of tight oil market conditions. A 9.5% drop in natural gas offset gains in oil. Elevated storage and waning heating demand continue to weigh on the market. In metals, gold snapped a six-week winning streak due to rising yields and profit-taking pressures. Copper was a bright spot as the industrial metal rose over 1% and topped resistance off the 2023 highs. Agricultural markets were led higher by a 10%-plus rally in wheat, which has now traded higher for seven straight sessions. Droughts in Kansas and areas of Russia have weighed on supply. 


Economic Weekly Highlights


Beware Stagflation. Investors were dealt a weak hand this week. Real final sales – GDP less the volatile component of inventories – decelerated for the second consecutive month. Slower growth with persistent inflation could put investors in a tough predicament. Annual core inflation held steady in March, rising 2.8% from a year ago, the same pace as in February, and the U.S. dollar gained after the report as markets expect the Fed to keep tighter policy longer than other major central banks. Inflation for services and goods are on two very different glide paths. Annual services inflation was 4% in March, but goods inflation was roughly flat. Real disposable personal income rose 0.2% in March, which gave consumers some support amid high prices but the savings rate fell to 3.2%, the lowest since late 2022, as consumers are likely feeling the pinch. A key takeaway is the timing of rate cuts will likely be pushed out even further as services inflation reaccelerated last month. If the economy slows and inflation lingers, the stagflation debate will likely resurface, potentially instigating some volatility in markets. 


The Week Ahead


The following economic data is slated for the week ahead:      

  • Monday: Dallas Fed Manufacturing (Apr),  

  • Tuesday: Employment Cost Index (Q1), FHFA House Price Index (Feb), Chicago Purchasing Managers’ Index (PMI) (Apr), Consumer Confidence (Apr), Dallas Fed Services Activity (Apr) 

  • Wednesday: MBA Mortgage Applications (Apr 26), ADP (APR), Manufacturing PMI (Apr Final), Construction Spending (Mar), Job Openings and Labor Turnover Survey (JOLTS) (Mar), Institute of Supply Management (ISM) (Apr), FOMC Meeting  

  • Thursday: Challenger Job Cuts (Apr), Trade Balance (Mar), Initial Claims (Apr 27), Factory Orders (Mar), Durable Goods Orders (Mar Final) 

  • Friday: Nonfarm Payrolls (Apr), Unemployment Rate (Apr), Service PMI (Apr Final), ISM Services (Apr) 








IMPORTANT DISCLOSURES


This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.


Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.


Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.


Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.


Asset Class Disclosures –


International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.


Bonds are subject to market and interest rate risk if sold prior to maturity.


Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.


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Mortgage backed securities are subject to credit, default, prepayment, extension, market and interest rate risk.


High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.


Precious metal investing involves greater fluctuation and potential for losses.


The fast price swings of commodities will result in significant volatility in an investor's holdings.


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