Market minute
Weekly analysis from the FS Investments Research team
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April 22, 2024
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Equities
The S&P 500 declined every day last week for the first time in two and a half years as escalating rates and geopolitical tensions terminated the stock euphoria. The index is now 5.5% below its all-time high, the sharpest drawdown since October. The week featured a classic trend reversal, with growth and momentum stocks – leaders YTD – lagging while value and stable stocks outperformed. Earnings thus far have mostly been focused on financials, where results have been mixed. Activity ramps this week as bellwethers like Visa, Meta, Caterpillar, and Microsoft will report.
Fixed income
Yields pushed higher again last week as Fed Chair Powell acknowledged that confidence in progress on inflation was eroding given hot inflation data at the start of the year. Markets reacted by pricing out another rate cut – markets now expect one to two rate cuts, or 39 bps of cuts. A deeper look at the Fed funds futures market now shows 14% expect one or more rate hikes, while 18% are now betting on no rate cuts. The majority probability in markets is still 1-3 rate cuts, however. The 10-year rose 10 bps to 4.62%, despite a Thursday night drop to 4.50% after Israel retaliated by firing rockets into Iran, sparking a brief flight to quality rally.
Commodities
Crude prices were volatile last week as traders tried to price risks related to Middle East tensions. Prices drifter lower for the first part of the week, spiked higher Thurday evening on reports of an Israeli retaliatory strike on Iran, then finished the week –2.94% lower. Gold extended its epic rise to a new all-time high and continues to divorce itself from real rates, a sign of the influence of geopolitics in investors’ minds.
Economic overview
Data last week reinforced two key trends: consumer spending is strong, and housing is struggling amidst higher interest rates. Retail sales surprised with a 0.7% m/m gain in March (Cons 0.4%) and the “control” group which aligns with GDP surged 1.1% m/m. Real GDP will be released next week, and while the consensus is 2.0% growth in Q1, the Atlanta Fed’s GDPNow model is predicting a 2.9% reading. Existing home sales fell –4.3% in March to 4.19 million units. Housing starts plunged –14.7% m/m to 1.31 million units as multifamily starts collapsed to 299,000 in March, the lowest since the GFC.
Source: Bloomberg Finance, L.P., as of 1:00pm on 4/19/24.