Weekly Market Performance — April 19, 2024

LPL Research provides its Weekly Market Performance for the week of April 15, 2024. The S&P 500 capped off its worst three-week stretch since last fall, sinking to its lowest point in almost two months. Investor anxiety has begun to rise due to a combination of factors including: more pronounced geopolitical tensions, rising interest rates, and the Federal Reserve's (Fed) increasingly less dovish stance. The tech sector felt the brunt of the selling pressure, falling over 7% for the week. The decline in the space also reflects concerns about overly optimistic earnings expectations heading into the business end of earnings season. The bond market also came under pressure, with benchmark 10-year Treasury yields settling at over 4.60%, but also off the highest levels of the week. This rise in yields has stemmed from Fed Chair Jerome Powell's recent comments, which have further dashed hopes of near-term interest rate cuts. Markets have now adjusted their expectations, anticipating only one rate cut this year.

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 04/19/24
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

Markets: The S&P 500 fell for the third consecutive week, and to its lowest level in nearly two months as investors continued to grapple with geopolitical uncertainties, higher rates, and more hawkish Fed signaling. The technology sector was hit particularly hard on the week and finished down over 7% on concerns that expectations may be too high on what can be achieved heading into the meat of earnings season. Defensive sectors unsurprisingly outperformed in the more volatile environment, with utilities leading the way and finishing almost 2% higher on the week.

Technical Landscape: The S&P 500 is experiencing its first real bout of volatility of the year. The April showers — bringing a more than 5% decline off the highs thus far — have started to create some minor technical damage. Notably this past week the index violated its 50-day moving average (dma) and moved below the 5,000 psychologically significant support level. While shorter-term breadth appears oversold, as nearly half of the index registered new four-week lows this week, longer-term breadth metrics have held up well. Nearly 70% of S&P 500 constituents remain above their 200-dma. Moreover, cyclical/offensive sectors are leading the way, with financials, energy, industrials, and materials still showing supportive breadth readings. The lack of major damage to longer-term breadth across the offensive sectors suggests bullish leadership is still on stable ground despite the current corrective activity.

Fixed Income: The Bloomberg Aggregate Bond Index finished the week lower as Treasury yields rose on the back of hawkish commentary from Fed Chairman Jerome Powell that once again pushed out the prospects of interest rate cuts later this year. Markets are now only expecting one rate cut with the potential for a second one later this year.

Last week’s hotter-than-expected inflation reading has been the recent bugaboo for fixed income markets. Immediately after the March CPI report, yields jumped by 15 to 20 basis points to year-to-date highs and have continued to leak higher since. The reading was the third “hot” print in a row causing markets to be concerned about the prospects of “sticky” inflation.

A major concern for markets and Fed officials is the prospect of inflation expectations becoming unanchored. Nominal U.S. Treasury yields can be broken out by an inflation component along with economic growth expectations. Year-to-date, the 10-year Treasury yield is higher by around 0.75%. Of that increase, roughly 0.25% is due to an increase in inflation expectations, whereas the remainder of the increase is the market recalibrating its expectations for stronger economic growth.

So far, at least in terms of market pricing, the sell-off in the Treasury market has been primarily a function of a more resilient economy, but the longer these inflationary pressures persist, the greater the chance business and consumers start to expect higher prices which could negatively influence spending.

Markets were right, in our perspective, to price out the aggressive rate-cutting cycle that was priced to start the year, but as long as progress is made on inflation, we think the Fed can still cut rates this year without reigniting inflation concerns. Unless inflation expectations become unanchored.

Commodities: The broader commodities complex ticked modestly higher this week. Strength in metals offset selling pressure in energy and agricultural markets. Industrial metals were a bright spot, including notable rallies in copper and aluminum. Technically, copper cleared key resistance off the 2023 highs as speculators continued to add to long positions. Safe haven demand and risk of sticky inflation pushed gold higher for a fifth straight week. Silver rallied 2.7% and posted its highest weekly close since 2013. Energy was volatile and underperformed. Crude oil pared brief intraweek gains as the risk premium faded on the lack of immediate Iranian escalation in response to Israel’s drone attack. West Texas Intermediate (WTI) slid 2.9% before finding support near $83. Cocoa prices continued to make headlines as prices jumped 12.8% on the week, bringing the commodities year-to-gain to 189%. A global supply deficit due to weak production in West Africa and expected flooding in Nigeria has supported the rally.

Economic Weekly Highlights

Fed Chairman Jerome Powell took the stage this past week and delivered an important message to investors. The Fed will likely stay on hold for longer than originally planned.

He also warned that supply constraints are still likely adding to inflation pressures and this dynamic makes it especially hard for the Fed. Strong retail sales and hawkish comments from Chair Powell are weighing on the bond market right now as investors grapple with a Fed on hold for most of this year. Investors are reassessing risk appetite as Chair Powell is not confident that inflation is cooling enough for rate cuts. The U.S. dollar is still the global reserve currency, despite ballooning government debt.

Investors also received the latest insights from businesses around the country via the Fed’s Beige Book. Here are a few key takeaways:

• Consumer spending barely increased overall, but reports were quite mixed across districts and spending categories.
• Businesses are still feeling a shortage of qualified business applicants, despite the recent uptick in unemployment.
• Wage growth is returning to historical averages and cooler wage growth could be a catalyst for softer consumer spending during the rest of this year.
• Disruptions in the Red Sea and the collapse of Baltimore’s Key Bridge caused some shipping delays but so far, have not led to widespread price increases.

Bottom Line: Businesses were cautiously optimistic about the outlook, giving the Fed some slack as the Fed will likely keep rates higher for longer. Businesses believe inflation will steadily slow, but it may take longer than originally expected. Profit margins will likely shrink in the coming months as businesses confess a weakening ability to pass cost increases on to the consumer.

The Week Ahead

The following economic data is slated for the week ahead:

• Monday: Chicago Fed National Activity Index (Mar)
• Tuesday: Philly Fed Non-Manufacturing (Apr), PMI (Apr), New Home Sales (Mar), Richmond Fed Manufacturing (Apr)
• Wednesday: MBA Mortgage Applications (Apr 19), Durable Goods (Mar)
• Thursday: GDP (Q1 Advance), Core PCE (Q1 Advance), Inventories (Mar), Initial Claims (Apr 20), Pending Home Sales (Mar), Kansas City Fed Manufacturing Activity (Apr)
• Friday: Personal Income & Spending (Mar), Personal Consumption Expenditures Price Index (Mar), University of Mich Sentiment (Apr Final), Kansas City Fed Services Activity (Apr)