MARKET UPDATE: ADP EMPLOYMENT, US FEDERAL RESERVE INTEREST RATE DECISION, US EMPLOYMENT REPORT

What We Are Watching This Week

• ADP Employment
• US Federal Reserve Interest Rate Decision
• US Employment Report

Highlights From Last Week

• Durable Goods Orders
• GDP
• Personal Income and Spending
• Personal Consumption Expenditures (PCE)

The S&P 500 Index and other major benchmarks broke a streak of three weekly losses as investors responded to a busy week of first-quarter earnings reports. Analysts anticipated a 3.7% increase in overall earnings for the S&P 500 compared to the previous year, with positive earnings surprises from S&P 500 companies exceeding their 10-year averages. The Nasdaq Composite Index performed well, supported by Apple and NVIDIA, while Alphabet’s strong earnings announcement and its first dividend payment boosted its shares. However, Meta Platforms, the parent company of Facebook, experienced a sharp decline in market value after CEO Mark Zuckerberg announced continued heavy spending on new technologies. The Canadian market closed with slight gains, primarily driven by the rise in materials stocks due to increased gold prices spurred by safe-haven buying. However, stocks across other sectors displayed a mixed performance. The STOXX Europe 600 Index ended 1.74% higher in Europe, breaking a three-week losing streak buoyed by easing tensions in the Middle East and upbeat corporate earnings. Major European stock indexes also saw gains, with Germany’s DAX up by 2.39%, France’s CAC 40 by 0.82%, and Italy’s FTSE MIB by 0.97%. The UK’s FTSE 100 Index reached all-time highs, rising by 3.09%.

The Flash US PMI Composite Output Index dipped to 50.9 in April (down from 52.1 in March), marking a 4-month low. Similarly, the Flash U.S. Services Business Activity Index fell to 50.9 (compared to 51.7 in March), hitting a 5-month low. The Flash U.S. Manufacturing Output Index registered at 51.1 (down from 54.0 in March), marking a 3-month low. The Flash U.S. Manufacturing PMI stood at 49.9 (compared to 51.9 in March), hitting a 4-month low. Although U.S. business activity expanded in April, the pace of growth decelerated, signaling weaker demand. Output increased at the slowest rate this year, reflecting diminished growth rates and declining orders in manufacturing and services. April witnessed an overall decline in new orders for the first time in six months. Consequently, companies reduced employment for the first time in nearly four years, with business confidence dropping to its lowest level since last November. Inflation rates eased at the beginning of the second quarter, with both input costs and output prices rising more slowly at the composite level. However, manufacturing input cost inflation reached a one-year high.¹

The U.S. Census Bureau and the U.S. Department of Housing and Urban Development have jointly released the latest statistics on residential sales for March 2024: In March 2024, the sales of new single-family houses reached a seasonally adjusted annual rate of 693,000, as per the latest estimates. This marks an increase of 8.8% (with a 17.2% standard deviation) from the revised February rate of 637,000 and an 8.3% (with a 19.5% standard deviation) rise from March 2023, which had an estimated 640,000. The median sales price for new houses sold in March 2024 was $430,700, while the average sales price stood at $524,800. At the end of March, the seasonally adjusted estimate of new houses available for sale was 477,000. This translates to a supply of 8.3 months at the current sales rate.²

In March, there was a notable uptick in new orders for manufactured durable goods, marking the second consecutive monthly increase. According to the U.S. Census Bureau’s report on Wednesday, orders surged by $7.3 billion, reaching $283.4 billion, a 2.6% rise. This positive trend follows a modest 0.7% increase in February. When excluding transportation, new orders still saw a slight uptick of 0.2%. However, when defense-related orders are excluded, the increase becomes more significant at 2.3%. The surge in transportation equipment, which has also seen growth for two consecutive months, played an essential role in this overall increase, jumping by $6.8 billion or 7.7% to reach $95.9 billion.³

On Thursday, the U.S. Bureau of Economic Analysis reported that the initial estimate of real gross domestic product (GDP) grew by 1.6% at an annual rate in the first quarter of 2024, a notable slowdown compared to the 3.4% growth observed in the fourth quarter of 2023. This expansion was primarily fueled by increased consumer spending and housing investment, although a decline in inventory investment partially offset it. Additionally, imports, which are deducted from GDP calculations, showed an increase. Consumer spending in the first quarter rose, particularly in services, despite a decrease in goods, with notable growth in healthcare and financial services. Residential fixed investment saw an uptick, driven by brokers’ commissions and new single-family housing construction. Non-residential fixed investment increased, primarily attributed to intellectual property products. State and local government spending rose, particularly in employee compensation. However, there was a notable decrease in inventory investment, particularly in wholesale trade and manufacturing. Imports increased both in goods and services. Comparatively, the slower real GDP growth in the first quarter was mainly due to decelerations in consumer spending, exports, and state and local government spending, along with a decline in federal government spending. However, residential fixed investment accelerated, and there was an uptick in imports.⁴

In the week ending April 20, the Department of Labor reported that the seasonally adjusted initial claims figure stood at 207,000, marking a decrease of 5,000 compared to the previous week’s unrevised level of 212,000. The 4-week moving average amounted to 213,250, showing a decline of 1,250 from last week’s unrevised average of 214,500. For the week ending April 6, the total number of continued weeks claimed for benefits across all programs was 1,873,546, indicating a decrease of 79,491 from the previous week. In the comparable week of 2023, there were 1,815,498 weekly claims filed for benefits across all programs.⁵

According to the National Association of Relators, pending home sales saw a 3.4% increase in March. While the Northeast, South, and West regions experienced monthly gains in transactions, the Midwest saw a decline. The Northeast and South witnessed decreases year-over-year, whereas the Midwest and West showed improvements. The Pending Home Sales Index (PHSI), which serves as a forward-looking indicator based on contract signings, rose to 78.2 in March. Compared to the previous year, pending transactions increased by 0.1%. It’s worth noting that an index of 100 corresponds to the level of contract activity in 2001. Chief Economist Lawrence Yun of NAR commented, “March’s Pending Home Sales Index, at 78.2, marks the best performance in a year, but it remains in a fairly narrow range over the last 12 months without a measurable breakout. Meaningful gains will only occur with declining mortgage rates and rising inventory.”⁶

On Friday, the Commerce Department reported that inflation remained persistent in March, as indicated by critical metrics closely monitored by the Federal Reserve, suggesting continued elevated price pressures. The personal consumption expenditures (PCE) price index, excluding food and energy, rose by 2.8% from a year ago, matching February’s level, exceeding the Dow Jones consensus estimate of 2.7%. Including food and energy, the all-items PCE price gauge increased by 2.7%, surpassing the 2.6% estimate. Monthly increases for both measures were in line with expectations, with a 0.3% uptick, mirroring February’s rise.  Consumers continued to spend despite elevated price levels, with personal spending rising by 0.8% month-on-month, slightly higher than estimates and consistent with February’s figure. Personal income also increased by 0.5%, aligning with expectations and higher than the previous month’s 0.3% rise. However, the personal saving rate declined to 3.2%, indicating households dipping into savings to sustain spending levels. The report and previous inflation data suggest the Fed may maintain interest rates through at least the summer unless significant changes occur. With inflation persisting, central bank policymakers closely monitor data as they consider future monetary policy actions. The Fed targets 2% inflation, a level the core PCE has surpassed for the past three years. Services prices rose by 0.4% month-on-month, while goods increased by 0.1%, reflecting shifts in consumer prices. On a 12-month basis, services prices rose by 4%, while goods barely moved, and food and energy categories saw modest increases.⁷

 According to the University of Michigan Surveys of Consumers, sentiment has remained unchanged since January 2024, continuing to plateau following significant gains at the end of 2023. The long-term business outlook improved slightly, reaching its highest level since June 2021, while views on personal finances softened due to concerns about high prices. U-M economist Joanne Hsu noted that consumers perceived minimal economic changes since the beginning of the year. She highlighted ongoing uncertainty about the economy’s future direction, particularly in anticipation of the upcoming election, with no prominent concern regarding global geopolitical factors among consumers.⁸

1. https://www.pmi.spglobal.com/Public/Home/PressRelease/2a6d069e95b3402f85a5e44e3ff49917
2. https://www.census.gov/construction/nrs/pdf/newressales.pdf
3. https://www.census.gov/manufacturing/m3/adv/current/index.html
4. https://www.bea.gov/data/gdp/gross-domestic-product
5. https://www.dol.gov/ui/data.pdf
6. https://www.nar.realtor/research-and-statistics/housing-statistics/pending-home-sales
7. https://www.bea.gov/news/2024/personal-income-and-outlays-march-2024
8. https://news.umich.edu/consumer-sentiment-holds-steady-amid-renewed-concerns-over-high-prices/

Important Information: 

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.  

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.  

Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.  

The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.