Weekly Market Commentary April 29th to May 3rd 2024

In a week in which Federal Reserve Chair Jerome Powell spoke about the lagging effects of rate hikes, various data points across the U.S. economy experienced it first hand. Economists are finally seeing the U.S. labor market moderate, posting the smallest gains in six months. Payrolls increased by 175k, well below the expected 240k jobs, while the unemployment rate ticked higher by 0.1% to 3.9%. Over the past few years higher wages have put upward pressure on prices, making controlling wage growth vital in the fight against inflation. Wages rose 0.2% over the last month and 3.9% over the past year, the slowest growth since June 2021.

The FOMC rate decision on Wednesday was uneventful with a unanimous vote to leave short-term rates unchanged at 5.25% to 5.50%. The Fed announced updates to the pace of balance sheet unwinding. The cap for Treasury roll offs was cut by more than half to $25 billion per month from $60 billion. The pace for mortgage-backed securities was left unchanged at $35 billion per month. Powell stated in his press conference that he believes progress has been made toward getting inflation closer to target, but it may take longer than expected.

ISM indices weakened in the month of April. ISM Manufacturing contracted after a promising March report, which saw the first expansion since September 2022. ISM Manufacturing posted a reading of 49.2, lower than the 50.0 that was expected. ISM Services, which have been particularly strong recently, unexpectedly contracted, falling to a four-year low of 49.4 and well below the 52.0 that was expected. Despite the lower demand, both indices showed higher prices paid, in line with other recently released sticky inflation data.

Equities closed with a green week across the board. The S&P 500 finished at 5,128, up 0.6%, while the Nasdaq closed at 16,156, up 1.4%. The Dow Jones Industrial Average was up 1.1%, finishing at 38,676. In the treasury market, yields fell across the curve as expectations for rate cuts returned. The two 2-Year U.S. Treasury ended the final trading session at 4.81% while the 10-Year closed at 4.50%.

Key economic releases in the upcoming light week include Consumer Credit and Sentiment.