In a volatile week, equities advanced (S&P 500 +0.56%) for the second straight week. On generally good earnings reports, big-cap tech stocks were the standout. The best sectors were utilities (+3.44%) and consumer discretionary (+1.60%); the worst sectors were energy (-3.27%) and financials (-0.58%).
- While we think Goldilocks will remain a fairytale, the April employment report certainly exhibited Goldilocks characteristics (job growth slowed to a still respectable 175,000, and average hourly earnings increased only 0.2% m/m and 3.9% y/y.) The unemployment rate (3.9%) stayed below 4.0% for the twenty-seventh consecutive month.
- The Fed met and Chair Powell reiterated its data dependecy for future rate changes. The economy is still growing, and while we think the risk of recession is higher than consensus views, it is simply too soon for Fed action.
- Middle/upper-income consumers are enjoying income and net worth growth but are keeping inflation sticky. Low-end consumers, though, have recession-style poor sentiment and depleted savings.
- Our base case remains a recession commencing prior to year-end that raises joblessness cools incomes, weakens demand, and, importantly, tames inflation. In the meantime, liquidity from Uncle Sam and residual Covid savings keep the economy humming.
- 1Q earnings reports are past the halfway mark. The degree of revenue surprises is the second lowest since the pandemic. On the other hand, earnings surprises are the best in ten quarters.
- Markets fell in April as risk aversion rose, largely due to sticky inflation and worrying signs about the sustainability of growth. Hotter-than-expected inflation releases contributed to growing evidence that the Fed will begin cutting rates later than previously thought, pushing Treasury yields up nearly 50 basis points (bps) over the course of the month, while tightening lending standards also widened corporate bond spreads.
- Stock market cautiousness is warranted due to poor monetary conditions, high valuations, and now, mixed technicals. There is some probability that we have seen the high for the equity market for 2024.
- In the Russell 1000 (large cap) 17% of companies are losing money; in the Russell 20000 (small Cap), the number is 43%.
- The federal budget deficit should be declining with the above-average economic growth we have been enjoying. Instead, tax revenues are in fact growing while spending is growing faster, resulting in $2 trillion structural deficits.
- Believe it or not, the S&P 500 is far less concentrated in foreign markets. (Top ten names in the U.S. are 34% of market capitalization, U.K 48% France 60%, Japan 39%, and Germany 61%.)
Source: Bob Doll Crossmark Investments
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.
Sincerely,
Fortem Financial
(760) 206-8500
team@fortemfin.com
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