Market Notebook

by | Apr 22, 2024

Discussion – 

Equity prices, as measured by ticker SPY, and bond prices, as measured by ticker BND, closed lower on the week. SPY closed a full 3% lower which is significant.

Despite last week’s stong pullback, SPY appears established in an upward trend. BND price action suggests wide-ranging consolidation.

Last week marked a sentiment shift or realignment associated with the expected timing and pace of Federal Reserve rate adjustments. Earnings reports contributed to the increased volatility. Medium-term sentiment remains positive, with short-term sentiment realigning with the idea that rate cuts will be delayed.

Economic indicators within the Market Notebook paint a picture of mostly normal economic conditions, with inflation slowly coming under control.

The most interesting piece of economic data released last week was the Conference Board’s Leading Economic Index. While February showed an increase in the index, March showed a decline. The March decline calls into question the idea that the lows are in for this economic cycle. With LEI waffling, the focus turns back to jobless claims.

Throughout the tightening cycle, jobless claims have never indicated recession by our measure. In fact, jobless claims suggest that “normal” market conditions will likely continue over the short term.

Although indicators suggest fundamentals are improving, it is worth noting that market participants should be on the lookout for recessionary conditions following the first rate cut after a tightening cycle. It seems likely that the first rate cut will happen in late 2024 or early 2025. To avoid recessionary conditions, the Federal Reserve will have to get the timing of rate cuts exactly correct. Thus far, the Federal Reserve has managed the economic cycle well.

All the best during the week ahead!

Disclaimer: Nothing in this discussion should be considered investment advice. The content of this discussion is strictly my personal opinion and subject to change at a moment’s notice. Investment advice can only be provided to you by your investment professional and not by a general market discussion such as this one. If you wish to speak with an investment advisor, contact us. We can probably help.