Weekly Market Report: May 31st, 2024

Last week markets absorbed the formal end of Q1 earnings season and some closely watched economic reports. Key drivers for the week were a relatively in-line April PCE inflation report, softer than expected Chinese PMIs, and interest rates edging higher on the long end. Within U.S. equity markets, the S&P 500 (-0.51%) and NASDAQ (-1.1%) snapped their respective five-week winning streaks while developed international closed up 1% with both Japan and Europe posting solid returns. Rates continued to back up with the 10yr yield closing back above 4.5% while 5 years and shorter tenors actually saw yields fall slightly. Currency and commodity markets were both relatively calm with both trading slightly lower on the week.

Market Anecdotes

  • U.S. equity markets saw some consolidation on the back of a 5%+ rally over the past five weeks fueled by strong corporate earnings, an increase in economic soft landing narratives, and a continuation of AI backed
  • Q1 earnings season is officially over with solid 6% bottom line growth and 4.2% top line growth leaving the S&P 500 priced at a 20.5x fwd P/E. A beat rate of 80% and margin of 7.5% were healthy as well. AI was the key theme with 199 companies citing AI in earnings calls last quarter.
  • While the Fed is focused on a higher for longer path with markets now pricing in only one cut this year, the ECB has set market expectations for a cut at their upcoming June meeting thanks to an improving cyclical outlook – with important currency and financial market implications.
  • According to BCA Geopolitical analysis, Donald Trump’s conviction of 34 felony counts by a New York state court last week, while troubling, is unlikely to change the course of the November elections with less than 15% of Trump supporters indicating they may reconsider if found guilty.
  • The latest BofA Fund Manager Survey has equity managers the most bullish since January 2022 with overweighting U.S. stocks the most crowded sentiment. It also shows over 60% of bond managers expecting higher rates in 2024.
  • Last week’s inauguration of a third consecutive DPP party President (Taiwan independence platform) saw newly elected President Lai walk dangerously close to Beijing’s line regarding the “One China” policy. Economic and political tensions are going nowhere.
  • A midweek bank downgrade due to its commercial real estate exposure sent a fresh jolt of volatility into the regional banks, serving a reminder to investors to remain vigilant as the slow moving commercial real estate issues continue to grind forward.

Economic Release Highlights

  • PCE inflation in April came in right at the consensus forecast for both YoY headline (2.7%) and core (2.8%) as well as MoM headline (0.3%) and core (0.2%). Personal income grew 0.3% and personal consumption expenditures slowed from 0.8% last month to 0.2%.
  • Chinese PMIs in May unexpectedly contracted on both Manufacturing (49.1) and Services fronts.
  • The second estimate of 1Q GDP reflected a notable downward revision from a 1.6% QoQ annual rate down to 1.3%. Personal consumption was also revised down from 2.5% to 2.0%.
  • May’s Consumer Confidence Index came in well above consensus forecast (102.0 vs 95.3) and the high end of forecast estimates.
  • Pending Home Sales Index fell 7.7% in April, well below the consensus forecast of 0.3% growth.
  • The March Case-Shiller Home Price Index grew 0.3% MoM and 7.4% YoY, exactly in line with the consensus forecast.
This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.
Subscribe To Our Newsletter

Subscribe To Our Newsletter

Join our mailing list to receive the latest financial news and tips

You have Successfully Subscribed!