Economic Update 5-13-2024

• In a light week for economic data, jobless claims ticked higher, while consumer sentiment dropped sharply.
• Equities saw gains in the U.S. and Europe, with marginal economic data keeping hopes alive for lower rates. Bonds were little changed in the U.S. on net, while foreign bonds were held back by a strong dollar. Commodity gains were led by precious metals and agriculture, while crude oil was little changed.

U.S. stocks saw a positive week, the third in a row, with price levels inching back toward all-time highs. This was in keeping with low volume, with little new economic data during the week. By sector, utility stocks led the way again, up over 4% on the week, followed by solid gains of over-2% in financials, materials, industrials, and consumer staples. Consumer discretionary lagged with minimal gains for the week, largely due to a sizable drop in Tesla shares. The somewhat surprising strength of lower-beta utility stocks has been seemingly led by strong earnings showings in Q1, hopes for lower rates later this year, and perhaps most importantly from sentiment, with an expected ramp-up in electricity needs from artificial intelligence in coming years.

Foreign stocks were mixed, with Europe earning the world’s strongest results for the week, followed by the U.K., while Japanese stocks lost ground for the week. European shares were boosted by stronger earnings results, along with continued high expectations for central bank rate cuts being not too far away. The Bank of England kept their policy interest rate steady, but with two votes for cuts this month, which provided some hints as to the closer timeline of upcoming cuts. The Swedish central bank did cut rates by a quarter-percent to 3.75%, easing for the first time since the hiking cycle started, but noted uncertainty as to the future path of inflation. With economic growth and labor markets more fragile in Europe, the decision to begin cutting has appeared an easier one than in the U.S.—a high likelihood remains for the ECB to begin in June. Japanese stocks were plagued by further yen depreciation, despite some recent central bank moves to shore up the currency. Emerging market stocks were flat as a whole during an oddly bifurcated week, with gains in China, Taiwan, and Mexico offset by declines in Brazil and India. Chinese stocks were helped by stronger holiday spending, as well as better trade data. The Brazilian central bank cut interest rates by a quarter-percent, to 10.50%, along with some hawkish rhetoric that wasn’t as well-taken by markets.

Bonds were minimally-changed during the week, along with little change in the Treasury yield curve. Senior floating rate bank loans outperformed with small gains, while high yield underperformed with a small loss. Foreign bonds were down generally, as the U.S. dollar strengthened a fraction of a percent last week.

Commodities were led by a sharp rise in gold, followed by higher agricultural prices. Crude oil gained for most of the week, before slipping back to just above where it started at $78/barrel. Gold prices have baffled some strategists, noting that stable to higher real yields have tended to pressure prices; however, the story continues of central bank buying demand, both as a hedge against potentially weaker economic growth but also some concern over potential impact of sanctions, which affect traditional safe havens, such as U.S. dollar reserves.

Period ending 5/10/2024	1 Week %	YTD %
DJIA	2.20	5.48
S&P 500	1.89	10.03
NASDAQ	1.17	9.12
Russell 2000	1.21	2.07
MSCI-EAFE	1.77	6.29
MSCI-EM	0.98	5.46
Bloomberg U.S. Aggregate	0.09	-1.97

U.S. Treasury Yields	3 Mo.	2 Yr.	5 Yr.	10 Yr.	30 Yr.
12/31/2023	5.40	4.23	3.84	3.88	4.03
5/3/2024	5.45	4.81	4.48	4.50	4.66
5/10/2024	5.47	4.87	4.52	4.50	4.64

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                                    

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.