What We Are Watching This Week

  • Consumer Credit
  • Comments from various Fed Presidents
  • Consumer Sentiment

Highlights From Last Week

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

Stocks closed higher after a turbulent week marked by a flurry of economic and earnings data. Growth stocks outpaced value shares, while small-caps surpassed large-caps, boosting the small-cap Russell 2000 Index back into positive territory for the year. Apple’s earnings release on Thursday, surpassing revenue expectations and announcing a record-breaking $110 billion share buyback, fueled market optimism. Despite this, the pan-European STOXX Europe 600 Index ended marginally lower in local currency terms amid cautious investor sentiment driven by mixed corporate earnings and uncertainty regarding post-June interest rates. Major European indexes saw varied performances, with Germany’s DAX, France’s CAC 40 Index, and Italy’s FTSE MIB declining. At the same time, the U.K.’s FTSE 100 Index reached a fresh high, buoyed by mining and energy stocks. On Friday, the Canadian market ended the week on a positive note, alleviating concerns about the Federal Reserve’s interest rate outlook following data indicating a slowdown in U.S. employment growth.

In February, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which encompasses all nine U.S. census divisions, saw a 6.4% annual gain, surpassing the previous month’s 6.0% rise. The 10-City Composite also experienced growth, with an 8.0% increase compared to last month’s 7.4%. Similarly, the 20-City Composite posted a year-over-year gain of 7.3%, up from 6.6% in the prior month. San Diego led with the highest year-over-year increase at 11.4%, trailed by Chicago and Detroit at 8.9% each. Despite holding the lowest rank, Portland saw a notable uptick, with a 2.2% increase in February after two months of minimal growth.1

In April, consumer confidence took a notable dive, reaching its lowest point since 2022, driven by concerns over inflation and a bleak outlook on job prospects. The Conference Board’s consumer confidence index dropped to 97, falling below both economists’ expectations and March’s figure of 103.1. Chief economist Dana Peterson highlighted decreased optimism regarding the current job market and heightened worries about future business conditions, job availability, and income. Elevated prices, particularly for essentials like food and fuel, dominated consumer concerns, followed by political and global tensions. Expectations for the next six months also declined to their lowest level since July 2022, driven by pessimism about future business conditions, labor market prospects, and income expectations. Notably, confidence remained relatively stable among consumers earning less than $50,000 annually, while it weakened among higher-income earners.2

In April, private sector employment surged by 192,000 jobs, accompanied by a 5.0% increase in annual pay compared to the previous year, according to the April ADP National Employment Report. Nela Richardson, ADP’s chief economist, noted broad-based hiring during the month, with only the information sector experiencing weakness, marked by job losses and the slowest pay gains since August 2021. Despite this, year-over-year pay gains for existing employees remained relatively stable at 5%, while pay growth for job-changers decreased from 10.1% in March to 9.3%, yet still surpassing earlier figures for the year.3

On Wednesday, the Manufacturing ISM Report for April showed that the manufacturing sector experienced contraction after a month of expansion, following 16 consecutive months of contraction. The Manufacturing PMI registered 49.2%, down 1.1 percentage points from March’s 50.3%. Despite this, the overall economy continued its expansion for the 48th consecutive month, with a PMI above 42.5% generally indicating expansion. The New Orders Index returned to contraction territory at 49.1%, down 2.3 percentage points from March’s 51.4%. Additionally, the Production Index fell to 51.3%, a 3.3 percentage point decrease from March. Prices rose significantly, with the Prices Index registering 60.9%, up 5.1 percentage points from March. The Backlog of Orders Index decreased to 45.4%, while the Employment Index increased slightly to 48.6% from March’s 47.4%. In a separate release on Thursday, the ISM Services report saw the services sector contract for the first time since December 2022, ending a streak of 15 consecutive months of growth. The Services PMI registered 49.4%, down two percentage points from March’s 51.4%. This marked contraction after a sustained period of growth, with the composite index indicating a downturn for the first time since May 2020. The Business Activity Index dropped to 50.9% in April, a significant decline of 6.5 percentage points from March’s 57.4%. While the New Orders Index continued to expand for the 16th straight month, it decreased to 52.2%, down 2.2 percentage points from March. However, the Employment Index contracted for the fourth time in five months, reaching 45.9%, down 2.6 percentage points from March’s 48.5%.4

On Wednesday, the U.S. Bureau of Labor Statistics reported that on the last business day of March, the number of job openings remained unchanged at 8.5 million, marking the lowest level since February 2021. Economists had anticipated 8.686 million job openings. The ratio of job openings to unemployed persons decreased to 1.32 from 1.36 in February, indicating a gradual cooling of the labor market, which averaged 1.19 in 2019. This decline in job openings and a decrease in job quits (3.3 million) suggests easing labor market conditions, potentially aiding the Federal Reserve’s fight against inflation. However, the Job Openings and Labor Turnover Survey (JOLTS) report was tempered by other data revealing a surge in raw material prices, reaching the highest level in nearly two years in April due to increasing commodity prices.5

Also on Wednesday, The U.S. Federal Reserve announced its decision to maintain its current monetary policy, keeping interest rates unchanged. Chairman Powell emphasized during a press conference that future rate adjustments would hinge on confidence in progress toward the target rate. Economic indicators show sustained growth, strong job creation, and high but slightly easing inflation. The Committee remains committed to achieving maximum employment and a 2% inflation rate in the long term, adjusting policy cautiously based on data and risks. Additionally, the Committee reaffirmed its commitment to reducing its securities holdings, changing the pace starting in June to ensure progress towards its inflation objective.6

In the week ending April 27, seasonally adjusted initial claims remained steady at 208,000, with the previous week’s level revised up to 208,000. The 4-week moving average decreased to 210,000, down 3,500 from last week’s revised average of 213,500. Meanwhile, total benefits across all programs decreased to 1,837,505, down 36,526 from the previous week. In the same week of 2023, there were 1,779,256 weekly claims filed for benefits. These figures illustrate ongoing patterns in initial and continued benefit claims, potentially reflecting shifts in economic conditions and program utilization over time.7

Friday’s jobs report, worse than anticipated, highlights an economic deceleration that could alleviate inflationary pressures and prompt interest rate reductions. This trend, however, risks dampening the nation’s robust economic expansion. According to U.S. Bureau of Labor Statistics data, employers added 175,000 jobs last month, below the economists’ forecast of 240,000. Despite this, the unemployment rate rose marginally to 3.9%, remaining close to a 50-year low. April’s hiring pace notably slowed compared to previous months, presenting the lowest monthly figure of the year. This deceleration may offer leeway for the Federal Reserve to lower interest rates without igniting a resurgence in rapid price hikes.8

WKYear to Date
S&P400 Mid-cap1.17%5.30%

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. 

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