Broker Check

Weekly Market Update April 26, 2024

April 28, 2024

Fed Funds 5.25% - 5.5%, US Ten Year 4.667%, Oil $83.65

The economy grew slower than expected in the first quarter as consumers pulled back on spending in the face of higher inflation. The Commerce Department reported gross domestic product grew by an anemic 1.6% annual rate in the first quarter, much less than estimates ranging from 2.4% to 3.4%. This sharp slowdown from the 3.4% pace of the fourth quarter is the slowest in two years. Inflation meanwhile stayed at an elevated 3.5%. “This was a ‘worst of both worlds’ report — slower than expected growth, higher than expected inflation,” said David Donabedian, chief investment officer of CIBC Private Wealth US. “The biggest setback is the acceleration in core inflation, and in particular, the services sector rising above a 5% annual rate.” 

Mixed economic data led to heightened volatility in stocks this week. Negative data led to declines that were sharply reversed by positive reports. Stocks ended the week much higher than where they began, as companies started releasing first quarter earnings reports. After Thursday’s close both Alphabet (Google) and Microsoft reported stellar earnings. Their stocks surged, buoying much of the technology sector, and equities overall. In my April 19 Weekly Market Update’s section on chip stocks, I reported that Nvidia’s stock price was quoted at $762. Today, a week later, it closed at $877. Broadcom jumped from $1,205 to $1,344. The chart below graphically illustrates the week’s stock market action.

                                                                                                                                                   Courtesy: Wells Fargo Investment Institute

Note the sharp drop on Thursday following the underwhelming GDP data that was released before the market opened. Stocks closed lower, although above the day’s low. The robust earnings report from mega cap technology stocks released later easily overcame the unpleasant CPI figures released Thursday and the in-line PCE data released Friday.

It may be difficult, but investors might pay less attention to interest rates and the long hoped-for lowering of the rate of Fed Funds. As market action over the past week, and indeed since the central bank started raising rates two years ago, illustrates, an obsession with rates can be counterproductive. It is fine for traders, but investors should pay less heed to it. Today the ten-year treasury yield is 4.7%. For those old enough to remember, the ten-year yield throughout most of the nineties ranged between 5% and 7%. The nineties were a very good decade for the financial markets.

 

Wishing You a Profitable Week