MARKET UPDATE: FACTORY ORDERS, JOB OPENINGS, U.S. NONFARM PAYROLLS, CONSUMER CREDIT

What We Are Watching This Week

• ISM Manufacturing, Factory Orders, and ISM Services
• Job Openings and ADP employment
• US Nonfarm Payrolls
• Consumer Credit

Highlights From Last Week

• Durable-goods orders
• US Consumer Confidence
• Personal Income and spending
• Personal Consumption Index (PCE)

During the shortened trading week, most major indexes experienced gains, marking the end of a quarter characterized by solid performance. The S&P 500 Index achieved new closing and intraday highs. Market advancement was widespread, with the equal-weighted version of the S&P 500 Index outperforming its market-weighted counterpart by a significant margin. Small-cap stocks also surpassed large-cap stocks, and the Russell 1000 Value Index recorded gains while its growth counterpart declined. Last week, TSX remained largely flat, although the Materials sector notably surged by 3.4%. Additionally, the Oil and Gas industry saw a 1.9% increase, driven by a 2.8% rise in Canadian Natural Resources. In Europe, most markets saw gains amidst light trading ahead of the Easter holiday weekend, with the STOXX Europe 600 Index reaching a record intraday high. These gains occurred despite confirmation of a notable slowdown in some major economies. Markets were closed for the Good Friday holiday but will reopen Monday ahead of many international markets.

On Monday, the Commerce Department reported in February that sales of new single-family homes in the U.S. unexpectedly declined due to rising mortgage rates. However, the housing market’s underlying strength persisted amid a shortage of previously owned homes. The median price of new homes was the lowest in over two years, while supply reached its highest level since November 2022. Builders are responding by increasing construction efforts, offering price cuts, and reducing floor sizes to enhance affordability. Despite a slight 0.3% decrease in new home sales to a seasonally adjusted annual rate of 662,000 units, economists had anticipated a rise to 675,000 units. However, year-on-year sales increased by 5.9%. The housing market has remained resilient despite interest rate hikes, but challenges persist due to insufficient supply, driving up prices, and limiting homeownership opportunities. The market experienced a temporary increase in mortgage rates, though the Federal Reserve is expected to initiate rate cuts later in the year. As a result of these developments, Wall Street stocks declined, while the dollar strengthened, and U.S. Treasury prices fell.¹

In February, durable goods orders in the U.S. exceeded expectations, rising by 1.4%, indicating a potential recovery in manufacturing despite previous setbacks following significant interest rate hikes by the Federal Reserve. Core capital goods rose 0.7%; However, shipments fell 0.4%. Transportation orders notably rebounded by 3.3%, with civilian orders experiencing a substantial increase after a sharp decline in January. Orders for motor vehicles and parts also accelerated by 1.8%. Primary and fabricated metals saw gains, along with machinery orders, which increased by 1.9%. However, orders for computers and electronic products fell by 1.4%, and those for electrical equipment decreased by 1.5%. The outlook for manufacturing, contributing 10.3% to the economy, appears promising, especially with expectations of rate cuts by the central bank. Surveys indicate manufacturers are optimistic about sales and business conditions, while factory output rebounded in February. Nonetheless, challenges persist as the November presidential election approaches, with concerns about the political environment rising among Americans, according to a Conference Board survey. Despite the positive momentum, uncertainties remain, emphasizing the need for cautious optimism within the manufacturing sector.²

In January, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, spanning all nine U.S. census divisions, indicated a 6.0% annual increase, up from 5.6% in the previous month. The 10-City Composite displayed a rise of 7.4%, surpassing the 7.0% increase in the last month, while the 20-City Composite recorded a 6.6% year-over-year gain, compared to 6.2% previously. San Diego boasted the highest annual gain at 11.2%, followed by Los Angeles at 8.6%. Conversely, Portland reported the lowest year-over-year growth but still showed a positive trend with a 0.9% increase. On a month-over-month basis, the U.S. National Index and the 20-City Composite declined by 0.1%, while the 10-City Composite remained stable. Adjusted for seasonal variations, however, all indices displayed month-over-month increases, with the U.S. National Index, the 20-City Composite, and the 10-City Composite rising by 0.4%, 0.1%, and 0.2%, respectively.³

In March, U.S. consumer confidence remained relatively steady, with concerns about the nation’s political landscape overshadowing receding worries of a recession ahead of the November presidential election, according to a survey by the Conference Board. The consumer confidence index slightly dropped to 104.7, almost unchanged from the downwardly revised 104.8 in February. Economists had anticipated a slight increase to 107.0 from the previously reported 106.7. Dana Peterson, chief economist at the Conference Board, noted a continued decline in fears of recession, alongside heightened apprehension about the U.S. political environment compared to previous months. Consumers’ inflation expectations rose slightly to 5.3% from 5.2% in February.⁴

On Thursday, the U.S. Labor Department reported that for the week ending March 23, the seasonally adjusted initial claims for unemployment decreased by 2,000 to 210,000 compared to the previous week’s revised level. The last week’s figure was adjusted upward by 2,000 to 212,000. The 4-week moving average decreased by 750 to 211,000 from the previous week’s revised average. The total number of continued weeks claimed for benefits across all programs for the week ending March 9 was 2,037,085, reflecting a decrease of 69,954 from the prior week. In the corresponding week of 2023, there were 1,906,517 weekly claims filed for benefits across all programs.⁵

In March, the Chicago Purchasing Manager’s Index (Chicago Business Barometer) dropped to 41.4 from February’s 44.0. This marks the fourth consecutive monthly decrease and the lowest reading in ten months. The figure is below the forecast of 45.9 and maintains the index in contraction territory for the fourth month in a row. The Chicago PMI evaluates business conditions and economic health in the manufacturing sector of the Chicago region. A reading above 50.0 indicates expansion, while below 50.0 indicates contraction in manufacturing activity.⁶

In March, the final reading of consumer sentiment surged to a 32-month high, signaling increased confidence among Americans that inflation would alleviate, thereby easing financial strain on households. This increase in consumer sentiment, the highest since July 2021, is a positive indicator of the public’s perception of the economy. Key details include a rise in the gauge reflecting current economic conditions to 82.5, also the highest since July 2021, and an increase in expectations for the next six months to a 2.5-year high of 77.4. Survey director Joanne Hsu noted that consumers are confident that inflation will continue to ease, with improvements in assessments and expectations of personal finances as perceived negative effects of high prices and expenses on living standards diminish.⁷

Investors got crucial economic data at the end of the week with the release of the February personal consumption expenditures index. In February, the U.S. saw another significant rise in prices, as indicated by the release of the Personal Consumption Expenditures (PCE) index, a crucial economic indicator for investors. The headline PCE index increased by 0.3%, slightly below economists’ forecasts of 0.4%. The annual inflation rate reached 2.5% from 2.4% the previous month. The core PCE index, which excludes volatile food and energy prices and is the Fed’s preferred inflation gauge, also rose by 0.3%, slightly lower than the prior month. However, the core inflation rate for the 12 months ending in February dipped to 2.8% from 2.9%. Earlier in the month, a rise in the consumer price index had caused concern on Wall Street, leading some investors to adjust their expectations regarding the timing of the Federal Reserve’s first interest rate cut. Therefore, the PCE report released on Friday will carry significant weight, indicating whether previous inflation figures were temporary setbacks or the start of a sustained trend of higher inflation. Consumer spending in the U.S. experienced a rebound in February following a sluggish start to the year, indicating that consumers still possess significant purchasing power. Household spending saw a robust increase of 0.8% last month, marking the largest rise in 13 months, while expenditures had only risen by 0.2% in the previous month. Economists surveyed by The Wall Street Journal had anticipated a 0.5% advance. Incomes also saw a modest increase of 0.3% in February. Consumer spending is the primary driver of the U.S. economy, and despite higher interest rates on major purchases like homes and cars, households have maintained a relatively strong spending pace.⁸

1. https://www.census.gov/construction/nrs/pdf/newressales.pdf
2. https://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf
3. https://www.prnewswire.com/news-releases/sp-corelogic-case-shiller-index-continues-to-trend-upward-in-january-2024-302099741.html
4. https://www.conference-board.org/topics/consumer-confidence
5. https://www.dol.gov/ui/data.pdf
6. https://www.cmegroup.com/education/events/econoday/2024/03/feed591467.html
7. http://www.sca.isr.umich.edu/?mod=article_inline
8. https://www.bea.gov/news/2024/personal-income-and-outlays-february-2024

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.