Hello, this is Claire Ellerhorst, Senior Portfolio Manager at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices closed higher for the second week in a row, with the S&P 500 Index up 0.6%, the Dow Jones Industrial Average up 1.1% and the tech-heavy Nasdaq Composite up 1.4% in total return. Yields were lower for the week, with the 10-year U.S. Treasury yield finishing at 4.50%, down from 4.66% at the end of the prior week.
The Federal Open Market Committee (FOMC) met to set monetary policy last week. As anticipated, officials voted to hold interest rates unchanged. The Fed statement noted a “lack of further progress” on inflation in recent months, reiterating that the central bank will not begin cutting rates until inflation progress resumes. Federal Reserve Chair Jerome Powell indicated that the response to more persistent inflation would be to hold rates higher for longer, rather than to raise rates further. Powell explicitly stated that it was unlikely the next rate move would be higher.
Stocks climbed and bond yields fell on Friday after the April employment situation report tempered concerns about persistent inflation. Employers added 175,000 jobs to payrolls last month, still a steady pace, but lower than March’s exceptionally strong 315,000 jobs. Average hourly earnings, a measure of wage inflation, rose 3.9% from a year earlier, down from 4.1% in March. The unemployment rate ticked slightly higher to 3.9% in April. In other economic news, the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index fell slightly more than expected for April to a level of 49.2. A level below 50 indicates contraction in the sector. The Job Openings and Labor Turnover Survey, or JOLTS report, showed job openings in March that were the lowest since February 2021, another indicator of cooling in the labor market. The Conference Board’s consumer confidence index fell sharply for April, with consumers noting concerns about inflation and the job market. While economic reports were weaker than anticipated last week, market participants were encouraged that signs of a cooling macro environment would be supportive in helping the Fed move toward interest rate cuts.
Markets were also boosted by a stronger earnings backdrop. First quarter earnings beat metrics were elevated and consensus expectations for 2024 earnings have moved modestly higher since the start of the year. With roughly 80% of S&P 500 companies having reported results so far, 77% of those companies have beaten earnings expectations and 61% have exceeded revenue expectations. The blended first quarter earnings growth rate for the S&P 500 Index is now 5.0% year-over-year, according to data from FactSet.
In the week ahead, the economic calendar is light. First quarter earnings season continues, with a handful of companies still scheduled to report. Market participants will also be watching commentary from Federal Reserve officials following last week’s policy meeting.
As always, we’ll be watching and reporting back to you. Thank you.
