Last Week on Wall Street

Last Week on Wall Street - May 4th, 2024

S&P 500: 0.55% DOW: 1.14% NASDAQ: 1.44% 10-YR Yield: 4.49%

What Happened?

U.S. stocks surged higher on Friday following the release of a weaker-than-expected April jobs report by the Labor Department, coupled with easing wage growth. Investors interpreted these developments as potential signals that the Federal Reserve might consider lowering interest rates in the future. Both the S&P 500 index and the Nasdaq Composite closed at three-week highs, reflecting the positive market sentiment. The April Nonfarm Payrolls report revealed an increase of 175,000 jobs, a significant decline from the upwardly revised 315,000 in March and the smallest monthly gain since last October. This figure fell short of expectations, which were around 250,000. Average hourly earnings rose slightly, which some analysts viewed as a positive sign for inflation. As a result of these developments, Treasury yields experienced a sharp decline, with the 10-year Treasury note dropping to nearly 4.45%, its lowest level in over three weeks.

Technology shares were among the top performers, with Apple (AAPL) witnessing a 6% rally following its stronger-than-expected quarterly results and announcement of a $110 billion share repurchase. Amgen (AMGN) also soared nearly 12%, leading Dow gainers after beating earnings expectations. Additionally, WTI Crude Oil futures experienced a week-long slump, closing just above $78 per barrel, the lowest since mid-March, amid concerns over rising U.S. supplies and signs of slower fuel demand.


US Job Growth Totaled 175,000 in April, Unemployment Rose to 3.9%

  • Nonfarm payrolls increased by 175,000 on the month, below the 240,000 estimate from the Dow Jones consensus.
  • The unemployment rate ticked higher to 3.9% against expectations it would hold steady at 3.8%. A more encompassing jobless rate edged up, to 7.4%, its highest level since November 2021.

The key takeaway - The U.S. economy experienced slower job growth in April than anticipated, which has raised expectations that the Federal Reserve may lower interest rates in the near future to support economic expansion. Specifically, nonfarm payrolls saw an increase of 175,000 jobs, falling short of the predicted 240,000. Additionally, the unemployment rate unexpectedly rose to 3.9%, while average hourly earnings growth also came in below expectations. These figures are seen as positive signs for controlling inflation, and consequently, financial markets responded positively, with lower Treasury yields and increased stock futures, suggesting a more accommodating future monetary policy.

Despite the weaker job growth, some sectors showed notable increases in employment, including health care and social assistance. This mixed labor report comes just after the Federal Reserve decided to maintain its benchmark interest rate, reflecting ongoing concerns about inflation which, while reduced from its mid-2022 peak, remains above the desired 2% target. The softer wage growth data from this jobs report enhances the likelihood of rate cuts later in the year, shifting market expectations and reintroducing discussions about easing monetary policy amidst a complex economic landscape where inflationary pressures still loom.


Home Prices Soar To All-Time High

  • U.S. home prices set new records in February with the S&P Case-Shiller Home Price Index showing a 6.4% annual increase nationwide, driven by strong demand and limited supply, with even higher growth rates observed in major cities.
  • Despite high mortgage rates, market dynamics like the anticipation of Federal Reserve cuts and the persistent low inventory continue to drive home prices up, suggesting that housing costs will remain high for the foreseeable future.

The key takeaway - Despite rising mortgage rates, the U.S. housing market saw an unexpected surge in home prices in February, as indicated by the S&P Case-Shiller Home Price Index. This increase was driven by strong demand coupled with a limited supply of homes, resulting in a 6.4% rise in national home prices compared to the previous year—a rate of growth not seen since November 2022. This upward trend was even more pronounced in major cities, where the indices for 10 and 20 major cities rose to 8% and 7.3% year-over-year, respectively, both reaching new all-time highs.

Regional disparities were evident, with San Diego leading the surge with an 11.4% increase, while cities like Portland saw much slower growth. The strongest markets were large metropolitan areas in the Northeast such as Boston, New York, and Washington D.C., which benefited from the return to office trends. Conversely, during the early 2020s, smaller and sunnier locales had thrived due to the popularity of remote working. The current high mortgage rates have heightened the lock-in effect, discouraging homeowners from selling due to the higher costs of borrowing. According to Redfin, although there has been a rise in new listings, the persistent demand and constrained supply continue to push prices upwards, suggesting that housing costs may remain elevated for some time.


Manufacturing PMI Slows to 49.2% in April

  • The U.S. manufacturing activity index, as reported by the Institute for Supply Management, declined by 1.1 points to 49.2% in April, indicating a contraction in the sector.
  • This drop follows a brief expansion to 50.3% in March, which was the first increase after 17 consecutive months of contraction.

The key takeaway - The U.S. manufacturing sector faced a contraction in April, as indicated by the latest Manufacturing ISM Report On Business. After briefly expanding in March, the sector returned to contraction, signaling potential challenges ahead for the broader economy. The Manufacturing PMI dropped to 49.2%, with declines in new orders and export orders suggesting weakening demand. Production levels were also down from the previous month, though some indicators like the Employment Index showed slight improvement. Notably, rising costs continue to be a concern, with the Prices Index increasing significantly, pointing to ongoing inflationary pressures that could affect future manufacturing stability and growth.

This contraction in manufacturing could have broader implications for the U.S. economy. Typically, manufacturing is seen as a leading indicator of economic health, and sustained contraction might predict a slowdown in other sectors. The mixed signals from various indexes—such as a slight increase in employment contrasted with dropping new orders and export orders—reflect uncertainty in the economic outlook. Continued cost pressures and the potential impact of Federal Reserve interest rate policies add to this uncertainty. If manufacturing continues to underperform, it could lead to reductions in GDP growth projections and potentially influence monetary policy decisions.


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