Market Minute
Weekly analysis from the FS Investments Research team
Listen to the podcast. Read the report. Start your week up to date.
May 13, 2024
Listen to the latest Market minute report
Equities
U.S. stocks gained for a third straight week as interest rates moved slightly lower and earnings remained broadly solid. The one thing that has not been supportive of equities is economic data – U.S. data continued surprising to the downside, but markets have largely overlooked this. With earnings season largely complete, S&P 500 EPS grew about 7% y/y, again beating expectations. The beat was driven by stronger-than-expected revenue growth, a trend that has been buoyed by persistent consumer inflation. The S&P 500 has regained almost the entirety of its 3-week –5.4% drawdown in April, ending the week near an all-time high. However, both other developed and emerging markets have outperformed the U.S. over that period.
Fixed income
Bonds rallied across the board as the tone set by the April payroll data carried into last week. Despite multiple Fedspeakers urging patience with the Fed rate cut timeline, markets are swinging back towards expecting two rate cuts in 2024. The 10-year Treasury yield ended the week down –1 basis point at 4.50%, but despite the rally is still down
–1.97% year-to-date.
Commodities
Oil prices ended slightly higher but continues to trade in a tight band amid mixed fundamental signals. Demand signals have been weak, but inventories fell last week and the U.S. continues to replenish the Strategic Petroleum Reserve. Oil is likely to be rangebound in the leadup to the OPEC+ meeting on June 1. Natural gas prices have risen more than 40% since late April as demand for LNG exports has grown. Gold prices, which declined as equities rebounded, rose last week as real yields fell.
Economic overview
It was a light week for data, but the two key releases were noteworthy. Initial jobless claims broke a streak of stronger-than-expected readings to unexpectedly jump to 231,000 in the week ending May 4. In and itself, this isn’t a bad number, but it is the highest in 8 months, and coming on the heels of other data showing moderating job growth helped fuel expectations there is room for rate cuts. The University of Michigan consumer sentiment survey was surprisingly weak, slumping to 67.4 in May when 76.2 was expected. The inflation expectations readings jumped, with the 1-year hitting 3.5%, up from 3.2% previously.
Source: Bloomberg Finance, L.P., as May 9, 2024.