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Market Brief: May 2024

May 2, 2024

The Markets (as of market close April 30, 2024)

Stocks ended April lower, with each of the benchmark indexes enduring their first downturn in several months. Throughout April, investors had to factor in the escalating crisis in the Middle East, increased spending to support Ukraine in its war with Russia, rising inflation, and the Federal Reserve's apparent intent to hold interest rates at a two-decade high. With April's decline, the S&P 500 was on track to end a streak of five straight monthly gains. Consumer confidence (see below) fell in April to its lowest level since 2022. While the labor market continued to support job growth, labor costs increased the most in a year, driven higher by wage pressures that are helping to push inflation higher.

Inflationary data showed price pressures continued to rise in March, with the Consumer Price Index and the Personal Consumption Expenditures Price Index rising 0.4% and 0.3%, respectively, unchanged from the prior month. The CPI rose 3.5% for the 12 months ended in March (3.2% for the year ended in February), while the PCE Price Index increased 0.2 percentage point to 2.7% for the year ended in March. The U.S. economy, as measured by gross domestic product, increased 1.6% in the first quarter, following a 3.4% increase in the fourth quarter (see below). This is the weakest rate of growth since the second quarter of 2022. Consumer spending slowed more than expected, coming in at 2.5% in the first quarter compared to 3.3% in the fourth quarter. Spending on services rose 4.0% in the first quarter, following a 3.4% increase in the previous period.

Job growth continued in March. In addition, a slight downward revision to the February estimate and an upward revision to January yielded a net upward revision of 22,000 in the two months preceding March. Wages continued to rise, increasing 4.1% over the last 12 months. New unemployment claims decreased from a year ago, while total claims paid increased.

At the mid-point of Q1 corporate earnings season, S&P 500 companies continued to generally outperform expectations. Overall, roughly 46% of the S&P 500 companies have reported actual earnings results. Of those companies, 77% have reported earnings per share above estimates. Multiple sectors have reported favorable earnings results, including communication services, financials, industrials, and information technology. Health care has lagged.

The housing market continued to be influenced by high mortgage rates and available inventory. Sales of existing homes declined, while sales of new single-family homes increased. Selling prices for new homes and existing homes continued to climb.

Industrial production ticked higher in March for the second consecutive month. According to the latest survey from the S&P Global US Manufacturing Purchasing Managers' Index™, the manufacturing sector saw its highest rate of expansion in 22 months in March. The services sector saw business accelerate but at its slowest pace in the last three months.

Among the market sectors, only utilities ended April higher. The remaining 10 sectors ended in the red, with real estate (-8.4%), information technology (-5.3%), and health care (-5.2%) falling the furthest.

Bond yields gained as bond prices declined in April. Ten-year Treasury yields generally closed the month higher. The 2-year Treasury yield rose nearly 35.0 basis points to about 5.05% on the last day of April. The dollar surged against a basket of world currencies. Gold prices climbed higher. Crude oil prices dipped lower. The retail price of regular gasoline was $3.653 per gallon on April 29, $0.130 above the price a month earlier and $0.053 higher than the price a year ago.

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Looking ahead

May begins with the Federal Open Market Committee meeting. The employment figures for April are also available early in the month. Investors will also be focused on corporate earnings throughout the month and impact of ongoing tensions in the Middle East. Despite April's slide, May has historically been a positive month for stocks.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/ Market Data (oil spot price, WTI, Cushing, OK); (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Forecasts are based on current conditions, subject to change, and may not come to pass. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities and other bonds fluctuates with market conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

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