Last Week on Wall Street

Last Week on Wall Street - April 20th, 2024

S&P 500: -3.05% DOW: 0.01% NASDAQ: -5.52% 10-YR Yield: 4.62%

What Happened?

The Nasdaq Composite experienced its longest losing streak in over a year, falling for a sixth consecutive session as Nvidia's decline added to market woes related to geopolitical conflicts and persistent inflation concerns. Meanwhile, the S&P 500 slipped below the 5,000 level, also marking its sixth straight negative day, a streak not seen since October 2022. The Dow Jones, on the other hand. saw a slight rise, boosted by American Express's strong earnings performance, which surged more than 6%.

Despite quarterly earnings beating expectations, Netflix saw a significant retreat, while chip stocks like Nvidia and Super Micro Computer faced increasing pressure, contributing to the downward trend in the tech sector. Investor concerns over geopolitical risks, particularly the Middle East conflict, initially caused volatility in oil prices, though fears eased somewhat as Israel's response was perceived as subdued, aimed at minimizing escalation. Overall, the market's tough week was characterized by growing fears around inflation and monetary policy, with the S&P 500 and Nasdaq Composite both posting their longest losing streaks since October 2022.

Tech bore the brunt of the decline this week, plummeting by 6.3%, followed by Consumer Discretionary (-4.2%) and Real Estate (-3.7%). Conversely, Utilities (+1.9%), Consumer Staples (+1.4%), and Financials (+0.8%) all showcased resilience, outperforming amid the market turmoil.


Powell Dials Back Expectations on Rate Cuts

  • Fed Chair Jerome Powell said the U.S. economy has not seen inflation come back to the central bank’s goal, pointing to the further unlikelihood that interest rate cuts are in the offing anytime soon.
  • “The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence,” he said during a central banking forum.

The key takeaway - Federal Reserve Chair Jerome Powell acknowledged on Tuesday that firm inflation during the first quarter has cast doubt on the possibility of lowering interest rates this year without signs of an unexpected economic slowdown. Powell's remarks signal a clear shift in the Fed's outlook following three consecutive months of stronger-than-anticipated inflation readings, which dashed hopes for pre-emptive rate cuts this summer. Despite initial optimism for rate cuts earlier in the year, Powell indicated that recent data have not instilled greater confidence in the Fed, suggesting that rate cuts may be delayed until later in the year. Powell emphasized that the Fed is not considering rate increases at this time and would leave rates at their current level "as long as needed" if inflation proves more stubborn.

Market participants reacted to Powell's comments, with the S&P 500 falling slightly and Treasury yields rising. The Fed's preferred gauge of inflation, expected to be released next week, is likely to show core prices rose 2.8% in March from a year earlier, but recent data have indicated an increase in inflation rates, complicating the Fed's decision-making process. Analysts now anticipate rate cuts to begin in July, September, or December, with only one or two cuts expected this year. Despite the challenges posed by firm inflation, Powell expressed confidence in the gradual moderation of wage pressures, which could be a key factor in the Fed's assessment of future inflation trends.


U.S. Moves Warships to Defend Israel in Case of Iranian Attack

  • Most of the past several weeks have shown that first-time claims for unemployment benefits haven’t fluctuated at all — as in zero.
  • A string of weekly reports showing exactly 212,000 initial claims has raised a few eyebrows on Wall Street
  • A Labor Department spokesperson noted that while the string of 212,000 prints on the jobless claims data is “uncommon,” it can be attributed to a consistent jobs picture reflected in seasonal adjustments to the data.

The key takeaway - Recent data from the Labor Department have revealed an unprecedented level of stability in the U.S. jobs market, with first-time claims for unemployment benefits remaining unchanged for most of the past several weeks. Specifically, for five out of the last six weeks, initial jobless filings have consistently totaled exactly 212,000, a figure that has raised concerns and skepticism among analysts and market participants alike. Despite the vast variability inherent in state programs and economic factors influencing jobless claims, the remarkably steady trend has prompted speculation about the accuracy and reliability of the reported data.

While some observers have raised suspicions about the consistency of the figures, attributing it to possible manipulation or errors in reporting, others have offered more analytical explanations, pointing to seasonal adjustments and new factors in the claims data. Despite the unusual stability in seasonally adjusted data, claims not adjusted for seasonal variations have shown significant fluctuations during the same period. These unadjusted figures have displayed significant variability, prompting close scrutiny from Federal Reserve officials who use them as a key component in their evaluation of the labor market.


Housing Markets Slump as Mortgage Rates Top 7%

  • Mortgage rates have surged past 7%, reaching their highest level since late 2023, causing home sales to experience their largest monthly drop in over a year.
  • This surge in rates, combined with uncertainty over real-estate commissions, is putting renewed pressure on the U.S. housing market.

The key takeaway - Home sales experienced their largest monthly drop in over a year in March, posing challenges for the U.S. housing market. The average rate on a 30-year fixed mortgage jumped by nearly a quarter percentage point to 7.1%, contributing to a 4.3% decline in existing home sales from February, the most significant monthly drop since November 2022. Despite a positive start to the year with rising sales in January and February, fueled by a decline in mortgage rates, the recent spike in borrowing costs is threatening affordability, potentially reversing the market's momentum.

Moreover, uncertainty surrounding changes to real-estate agent commissions is adding to buyer hesitation, with new rules expected to impact negotiation dynamics and overall costs. With rates projected to remain elevated and the housing market's busiest season underway, potential buyers and sellers may pause until there is more clarity, further impeding market momentum. The combination of higher rates, supply shortages, and regulatory uncertainty presents significant challenges for the housing market's recovery and underscores the need for increased inventory to address affordability concerns and stimulate sales activity.


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