Hello, this is Tom Jalics, Chief Investment Strategist at Fifth Third Bank.
The major US equity indices ended modestly higher last week. The S&P 500 was up 0.4% for the week, formally pulling out of its nearly eight-month bear market, having risen 20% from its October 2022 low.
The Nasdaq Composite closed the week up 0.2% and the Dow Jones Industrial Average was up 0.4% for the week. U.S. Treasury yields moved modestly higher last week with the 10-year U.S. Treasury note ending the week at 3.75% and the 2-year U.S. Treasury note ending the week at 4.60%. The 2-year/10-year U.S. Treasury yield curve remained inverted, finishing the week 85 basis points inverted. The U.S. dollar index was down 0.4% for the week versus a basket of global currencies. Gold finished the week 0.6% higher, ending the week at $1960/ounce. West Texas Intermediate (WTI) crude oil fell by 2.0% for the week, ending the week at $70.27/barrel.
Equity markets reached a new high for the year last week and the S&P 500 is up approximately 20% from its mid-October 2022 lows, breaking out of an eight-month bear market. The rally has been powered by a resilient economy, driven by an empowered consumer, that has defied expectations for an economic slowdown in the face of higher interest rates. The more favorable turn in inflation recently and the gradual shift in Federal Reserve interest rate policy lends credence to the notion that the October 2022 stock market low may not be revisited. However, it is likely premature to fully sound the all-clear. Some form of an economic slowdown is still likely ahead, given the lagged effect that higher interest rates tend to have on the real economy. Durable market bottoms are typically achieved through a Fed dovish tilt or pivot, which may come to fruition in this week. Additionally, new bull markets typically rise out of the bottoming in economic activity. Our preferred measures of economic activity include prospective earnings per share (EPS) estimates (a measure of a company or a group of company's future profits), and in Purchasing Manager's Indices (which are survey data that offers prospective economic trends in the manufacturing and services sectors). S&P 500 EPS estimates appear high and Purchasing Manager's Index data are offering mixed signals today. Given both central bank interest rate uncertainty and economic uncertainty, it is a bit premature to position for a new bull market in equities in our estimation.
This week investors will be paying close attention to crucial information on inflation and the Federal Reserve’s decision on interest rates. Important economic releases this week include the Labor Department’s latest figures on consumer prices on Tuesday, with producer price data set to follow on Wednesday. The Federal Reserve will kick off its two-day policy meeting on Tuesday, with a decision on whether to increase or pause interest rate increases on Wednesday. Market participants will get an update on retail sales, as well as consumer sentiment later in the week. And finally, this week will see several S&P 500 companies reporting earnings include Oracle, Adobe, Kroger, and Lennar Corporation.
As always, we will be watching and reporting to you next week. Thank you.