Economic Update 5-28-2024

• Economic data for the week included stronger PMI activity surveys for manufacturing and services, and durable goods orders, while housing sales data came in weaker.
• Global stocks were mixed last week, with the U.S. faring a bit better overall, while foreign stocks lagged, especially in emerging markets. Bonds fell mildly along with higher interest rates during the week, as the chances of the Fed and other central banks easing policy sooner faded. Commodities were mixed, with agriculture higher, and energy and metals lower.

U.S. stocks were mixed last week, with technology closing with gains over 3% (leading the Nasdaq to more all-time highs), while all other sectors fell back, led by the largest losses from energy and financials. The earnings report for the Magnificent 7 member Nvidia was closely-awaited on Wed., which resulted in another strong report, in addition to a dividend raise and 10-for-1 stock split, and 15% return on the week. Real estate also fell back by nearly -4% along with higher interest rates, which punished the ‘value’ segment in general. Small cap stocks also underperformed large caps.

Fed Governor Waller noted in a speech that he’d need to see ‘several more months’ of good inflation data before feeling comfortable easing policy through a rate cut. He’s only one member of the FOMC, but this appears to reflect the opinions of economists as well, with 1-2 cuts this year still the general base case, although the 0-1 probabilities have been increasing.

In exciting news from a security settlement standpoint (not something we often say), the SEC’s mandated update to T+1 (transaction date plus one business day) is going into effect after the long weekend on Tue., May 28. Such changes only occur infrequently, due to the operational and technological hurdles involved, but follows a move to T+2 in 2017, and to T+3 in the 1990s, after a long stretch of T+5, which had been driven by the manual settlement of trades in that earlier era. There are calls for T+0 ‘real time’ settlement at some point, or at least nightly settlement, but no target on that has been set. Some issues remain with that faster settlement, such as a lessened ability to correct errors and for other operational adjustments where at least some extra time is helpful.

Foreign stocks experienced a negative week, as a whole, underperforming domestic stocks. Europe and Japan saw milder losses, while the U.K. and emerging markets fared worse. As has been the case in the U.S., questions over the potential pace of central bank interest rate policy changes have driven sentiment. Specifically, U.K. inflation came in a bit hot, at 4.85% year-over-year, which pushed back some assumptions calling for near-term rate cuts. However, ECB officials held firm with expectations of a June cut. In EM, while Indian stocks gains, China, Brazil, and Mexico fell by upwards of -5% for the week. These returns accompanied fears of higher rates for longer in the U.S., which puts upward pressure on the U.S. dollar, and can be problematic for these EM countries.

Bonds mildly fell back across the board along with higher yields across the U.S. Treasury curve, with the exception of floating rate bank loans, which saw small gains. Foreign bonds saw deeper declines, along with a stronger dollar.

Commodities were mixed for the week, with strong gains in agriculture (as wheat prices rallied by 5%, along with forecasts of lower production), while energy and metals fell back. Crude oil prices fell by -2% last week to around $78/barrel, in a secondary effect of continued-high U.S. interest rates leading to slowing economic growth, and ultimately lower demand, in the absence of other information to focus on.

Period ending 5/24/2024	1 Week %	YTD %
DJIA	-2.30	4.44
S&P 500	0.05	11.85
NASDAQ	1.42	13.05
Russell 2000	-1.21	2.64
MSCI-EAFE	-0.86	7.12
MSCI-EM	-1.48	6.71
Bloomberg U.S. Aggregate	-0.28	-1.68

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
5/17/2024	5.46	4.83	4.44	4.42	4.56
5/24/2024	5.46	4.93	4.53	4.46	4.57

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.