June 2, 2024
Volume 11, Issue 22
Weekly Recap
The major domestic equity benchmarks moved mostly lower last week but rounded out a month of solid gains. In contrast to much of the month, small-caps performed better than large-caps, and value stocks held up better than growth shares. The technology-heavy Nasdaq Composite was especially weak, due in part to a sharp decline in cloud software provider Salesforce, which fell after releasing first-quarter revenues that missed consensus estimates.
The catalysts for last week’s activity seemed harder to detect than usual. Much of the week’s relatively light economic calendar came in roughly in line with expectations, most notably the Commerce Department’s personal consumption expenditure price index report, released Friday morning. Core (ex-food and energy) PCE prices – widely considered the Federal Reserve’s preferred inflation gauge – rose 0.2 percent in April, down slightly from the previous two months and seemingly a period of calming inflation pressures following January’s 0.5 percent spike. “Supercore” inflation (PCE services excluding energy and housing), which has lately become more of a focus because of the unusual dynamics of housing and rental costs, offered a more mixed picture, rising 0.3 percent, down a tick from March but a tick up from February’s increase. Separately, the Case-Shiller index of housing prices in major U.S. cities, reported Tuesday, rose 7.4 percent over the 12 months ended in March, the highest level since October 2022.
The impact of the continued increase in home prices and mortgage rates was reflected in a 5.7 percent decline in mortgage applications over the previous week, the biggest drop since February. Pending home sales in April also slumped 7.7 percent, their biggest drop in over three years and well below expectations.
The Treasury Department’s midweek auctions of five- and seven-year notes, were met with subdued demand (as indicated by the bid-to-cover ratio). The weak sales raised concerns that funding the U.S. deficit will drive up yields at a time when the Fed appears to be in no rush to cut rates. Minneapolis Fed President Neel Kashkari may have contributed to a sell-off on Tuesday by saying, “I don’t think anybody has totally taken rate increases off the table. I think the odds of us raising rates are quite low, but I don’t want to take anything off the table.” Generally, however, fixed income traders appeared sanguine on the news as yields were little changed for the week.
Market Monitor
A full listing of market performance data is available here.
DQYDJ.com (“Don’t Quit Your Day Job”) offers helpful investment calculators here, including one that shows total returns for individual stocks. Koyfin.com provides reams of data on individual stocks, including the ability to track total return — and just about anything else — over time.
In the News
Inflation rose about as expected in April, with markets on edge over when interest rates might start coming down, according to a measure released Friday that is followed closely by the Federal Reserve. The personal consumption expenditures price index excluding food and energy costs increased just 0.2 percent for the period, in line with estimates, the Commerce Department reported. On an annual basis, core PCE was up 2.8 percent, or 0.1 percentage point higher than the estimate. Including the volatile food and energy category, PCE inflation was at 2.7 percent on an annual basis and 0.3 percent from a month ago. Those numbers were in line with forecasts.
Personal income increased $65.3 billion (0.3 percent at a monthly rate) in April, according to estimates released today by the Bureau of Economic Analysis. Disposable personal income – personal income less personal current taxes – increased $40.2 billion and personal consumption expenditures increased $39.1 billion.
Real gross domestic product increased at an annual rate of 1.3 percent in the first quarter of 2024, according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2023, real GDP increased 3.4 percent.
Home sales fell in April for the second straight month, as high mortgage rates and near-record home prices continue to stall the market during the prime selling season. Sales of previously owned homes decreased 1.9 percent from the prior month to a seasonally adjusted annual rate of 4.14 million, the National Association of Realtors announced Wednesday.
An inverted yield curve, in which yields on short-term U.S. Treasury paper exceed those of longer-term government debt, has long been something of a North Star on Wall Street – a nearly surefire signal that an economic pullback looms. That conventional wisdom is now very much in doubt. The yield curve has been inverted for a record-long stretch, and no sign of a major economic slowdown has emerged.
Why are people so down about the economy?
Why aren’t 529 savings plans more popular?How has inflation hit your finances?
Charts of the Week
I found the following articles to be of note. Some may be of interest only to advisors while others are aimed more broadly. You may hit paywalls below; many can be overcome here.
- 10 Factors To Determine If Your Potential Niche Is Really Viable (Michael Kitces)
- Why Losses Make Legends (Frederik Geischen)
- A Masterclass with Bill Miller (Conor Mac)
This is the best thing I’ve read recently. The wildest. The smartest. Luxury beliefs. Why are people so down about the economy? Safe cars for teens. Uh-oh. Negativity bias. Interesting new book. Denominator bias. The Bedford Boys. Brian Portnoy was joined by Bob Seawright and Drew Dickson recently to discuss the impact and legacy of the late behavioral economist Daniel Kahneman. You may watch it here.
The French post office prints baguette stamps that smell like bread: “The stamp has a ‘bakery scent’, which was achieved through the use of microcapsules that are embedded within the ink of the stamps to provide the bread-like fragrance.”
“You have a choice – do you want to bet on the years where things fail or do you want to bet on the decades where they succeed?” ~ Nick Maggiulli
Securities and advisory services are offered through Madison Avenue Securities, LLC, a member of FINRA and SIPC, a registered investment advisor. This report provides general information only and is based upon current public information we consider reliable. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment or any options, futures, or derivatives related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities, other investment, or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that price or value of such securities and investments may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Diversification does not guaranty against loss in declining markets.
