Presented by Mark Gallagher

Technology and communication services were the only equity sectors that were positive last week. U.S. Treasuries sold off amid concerns of persistent inflation.

Quick Hits

1. Report releases: Existing home sales fell for the second consecutive month in April.
2. Financial market data: Semiconductors led a narrow rally after Nvidia earnings were released.
3. Looking ahead: This week, we expect consumer confidence data and a key inflation metric.

Report Releases—May 20–24, 2024

Existing Home Sales: April (Wednesday)

The pace of existing home sales unexpectedly slowed for the second consecutive month.

-Expected/prior month existing home sales change: +0.8%/–3.7%

-Actual existing home sales change: –1.9%

Federal Open Market Committee (FOMC) Meeting Minutes: May (Wednesday)

The minutes from the May FOMC meeting showed a hawkish tilt at the Federal Reserve (Fed), with many participants believing a higher-for-longer interest rate environment is needed to combat inflation.

S&P Global US Composite PMIs: May (Thursday)

Manufacturing and services segments surprised to the upside. Manufacturing reached expansionary territory, rising from 50 to 50.9; services moved from 51.3 to 54.8.

-Expected/prior US Composite PMI: 51.1/51.3

-Actual US Composite PMI: 54.4

Durable Goods: April (Friday)
Industrial durable goods orders were better than expected in April, with defense and transportation the two major drivers.

-Expected/prior month change: –1%/+2.6%

-Actual production change: +0.7%

The Takeaway

-Existing home sales surprised to the downside in April amid rising rates and a more hawkish tone from the Fed.

-Services and manufacturing segments improved notably in May. Durable goods surprised to the upside in April.

Financial Market Data

Equity

Source: Bloomberg, as of May 24, 2024

U.S. equities were mixed, with Nvidia earnings leading semiconductors higher in a narrow rally. Technology and communication services were the lone positive sectors. Energy and real estate each fell more than 3.7 percent; financials and consumer discretionary each lost at least 1.8 percent. The market continued to struggle, with softening data and persistent inflation in pockets of the economy such as shelter, auto insurance, and hospital costs.

Fixed Income

Source: Bloomberg, as of May 24, 2024

The short-to-intermediate portion of the yield curve (i.e., maturities of 1–5 years) moved higher. The 2-year increased 12 basis points (bps), closing at 4.95 percent amid concerns that the Fed will cut rates and inflation will remain elevated.

The Takeaway

-Equities were led by Nvidia earnings, which paced a very narrow rally.

-Treasury yields moved higher. Bond investors are questioning the impact of potential rate cuts this fall.

Looking Ahead

The focus this week will be on consumer confidence and inflation. The highlight will be the April release of the Personal Consumption Expenditures Price Index (Core PCE), a key inflation gauge for the Fed.

-The week kicks off Tuesday with the release of the Conference Board Consumer Confidence Index for May. Consumer confidence is expected to dip modestly, which would mark three consecutive months with falling confidence.

-On Wednesday, the Fed’s Beige Book, which summarizes economic conditions across the 12 Fed districts, will be released.

-We expect the second release of first-quarter gross domestic product (GDP) data on Thursday. It’s expected to be revised downward from 1.6 percent to an annualized 1.2 percent.

-Finally, on Friday, Core PCE will be released. This key inflation metric for the central bank is expected to be 2.8 percent year-over-year.

Disclosures: This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index. The Bloomberg US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com

Authored by the Investment Research team at Commonwealth Financial Network.

© 2024 Commonwealth Financial Network

Presented by Mark Gallagher

Equities continued their rally as those sectors that benefited from more persistent inflation outperformed. U.S. Treasuries were little changed as investors wait for this week’s inflation data.

Quick Hits

1. Report releases: Consumer sentiment fell by more than expected in May.
2. Financial market data: Utilities, financials, and staples rally on the potential of higher for longer.
3. Looking ahead: This week will be busy on the economic front with inflation, retail sales, housing, and industrial production all in focus.

Report Releases—May 6–10, 2024

Consumer Credit, March (Tuesday)

Consumer credit came in below expectations in March. This is a trailing measure but confirms some of the recent trends we have seen in waning consumer confidence.

-Expected/Prior Month Consumer Credit: $14.130B/$14.125B

-Actual Consumer Credit: $6.274B

Fed Speaker Commentary

There were numerous Federal Reserve (Fed) speakers providing commentary this past week including Tom Barkin, John Williams, Neel Kashkari, Susan Collins, Mary Daly, Lorie Logan, Austan Goolsbee, among others. The commentary was mixed with Kashkari issuing concerns over inflation staying at its current level. Barkin, on the other hand, said he thought rates were weighing on the economy.

MBA Mortgage Applications, Week ending May 3 (Wednesday).

Mortgage Applications tend to be volatile on a weekly basis but the recent move lower in rates did coincide with increased demand for the week ending May 3.

-Prior Weekly Mortgage Application Change: -2.3%

-Actual Weekly Mortgage Application Change: 2.6%

Preliminary University of Michigan Consumer Sentiment Survey, May (Friday)
Consumer sentiment fell by more than expected in May due to worsening consumer views on the current economic conditions as well as a drop in expectations for the future.

-Expected/Prior Month Consumer Sentiment Index: 76.2/77.2

-Actual Consumer Sentiment Index: 67.4

The Takeaway

-The Fed Governors remain mixed in the near-term policy stance—not ruling out hikes—but also believe the prior hikes continue to weigh on the economy.

-Consumer confidence fell by more than expected as consumers continue to be concerned about the level of inflation.

Financial Market Data

Equity

Source: Bloomberg, as of May 10, 2024

The market saw a broadening out of this year’s rally as we move deeper into earnings season. Utilities, financials, materials, and consumer staples led the way. Technology, energy, and consumer discretionary were underperformers as investors look to risk-off and higher for longer rate names. JP Morgan Chase (JPM), Costco (COST), and NextEra (NEE) were all up more than 4 percent on the week. The move in Costco came even as April sales missed expectations.

Fixed Income

Source: Bloomberg, as of May 10, 2024

Treasuries were relatively subdued last week. The 10-year Treasury ended flat at 4.50 percent. This week will have a greater amount of economic data with both Producer and Consumer Price Indices due. As a result, there could potentially be larger moves in the treasury market.

The Takeaway

-Equities saw a broadening out of its rally as higher for longer sectors benefited.

-Treasuries saw little movement ahead of this week’s inflation data.

Looking Ahead

This week will be busy on the economic front with inflation, retail sales, housing, and industrial production all in focus.

-Wednesday will be the busiest day of the week in terms of economic data. The Consumer Price Index and Retail Sales reports for April are due out at 8:30 a.m. Consumer inflation is set to slow on a year-over-year basis in April, with both headline and core inflation expected to moderate during the month. Retail sales are expected to show continued growth in April, which would mark three consecutive months with rising sales if estimates prove to be accurate.

-Later that morning we will see the release of the Home Builders Housing Market Index for May. Economists expect to see unchanged home builder confidence in May, which would leave the index in expansionary territory during the month.

-Finally, Thursday will see the release of Industrial Production for April. Industrial production growth is expected in April, supported by continued manufacturing production during the month.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000^® Index measures the performance of the 2,000 smallest companies in the Russell 3000^® Index. The Bloomberg U.S. Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg U.S. Mortgage-Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg U.S. Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million. One basis point is equal to 1/100th of 1 percent, or 0.01 percent.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com

Authored by the Investment Research team at Commonwealth Financial Network.

© 2024 Commonwealth Financial Network

Market Update— Month Ending April 30, 2024
Presented by Mark Gallagher

Quick Hits

1. Markets Pull Back

Stocks fell in April as rising interest rates weighed on performance.

2. Bonds Struggle

Rising short- and long-term interest rates caused bonds to fall.

3. Continued Economic Growth

Economic reports released in April showed signs of continued growth.

4. Markets Rethink Interest Rates

Still-high inflation caused interest rates to rise.

5. Market Risks Remain

Domestic, foreign, and unknown risks remain for markets.

6. Fundamentals Remain Solid

Economic and market fundamentals support future improvements.

Markets Pull Back

All three major U.S. indices tumbled in April. The S&P 500 lost 4.08 percent, the Dow Jones Industrial Average fell 4.92 percent, and the Nasdaq Composite dropped 4.38 percent. The sell-off, which was the first monthly decline this year after a strong first quarter for stocks, was primarily due to rising interest rates during the month.

Despite the declines, equity fundamentals improved in April. Per Bloomberg Intelligence, as of April 29, with 48 percent of companies having reported earnings, the average earnings growth rate for the S&P 500 in the first quarter was 4.9 percent. This exceeded analyst estimates at the start of earnings season for a more modest 3.8 percent increase. The better-than-expected earnings growth was widespread, with 10 of 11 sectors coming in above analyst estimates. This marks three consecutive quarters with solid earnings growth. Over the long run, fundamentals drive market performance, so solid earnings growth to start the year is a good sign for investors.

Technical factors were also supportive. All three major U.S. indices spent the entire month above their respective 200-day moving averages. The 200-day moving average is a widely monitored technical indicator because sustained breaks above or below this level can signal shifting investor sentiment for an index. Continued technical support throughout the month was another welcome development
for investors.

Results were mixed for international equities. The MSCI EAFE Index lost 2.56 percent in April. The MSCI Emerging Markets Index, on the other hand, rose 0.47 percent. Technical results were supportive for international stocks; both the MSCI EAFE and MSCI Emerging Markets indices spent the entire month above their respective 200-day moving averages.

Bonds Struggle

Bonds fell as rising interest rates pressured prices. The 10-year Treasury yield rose from 4.2 percent at the end of March to 4.69 percent at the end of April. A combination of faster economic growth and
higher-than-expected inflation caused the rising interest rates. The Bloomberg Aggregate Bond Index lost
2.53 percent.

High-yield fixed income also experienced losses. The Bloomberg US Corporate High Yield Bond Index lost 0.94 percent. High-yield credit spreads were unchanged at 3.12 percent.

Continued Economic Growth

Economic data released in April showed continued strong levels of economic growth. This was highlighted by the March employment report, which showed an impressive 303,000 jobs were added during the month, marking the largest monthly increase in 10 months and highlighting the continued strength of the labor market.

In addition, we saw continued consumer and business spending growth in March. Personal spending and retail sales increased more than expected, signaling impressively resilient consumer spending. This is a good sign for overall economic growth given the importance of consumer spending for the economy.

Although these impressive results were a welcome sign of healthy economic growth, the bad news is they contributed to stubbornly high levels of inflation. On a year-over-year basis, both headline and core consumer prices rose in March. As you can see in Figure 1, the pace of headline consumer price growth now sits at its highest level since September 2023; progress in getting inflation down has stalled.

The Takeaway

-Economic growth continued, highlighted by strong hiring and spending growth.

-Inflation remained stubbornly high in March, contributing to the rising interest rate environment.

Markets Rethink Interest Rates 

Although strong economic growth to start the year was welcome for investors and economists, high levels of inflation in March were not. Investors spent most of April reassessing the proper level for long- and short-term interest rates in light of stronger economic growth and sticky inflation.

We started the month with futures markets pricing in a total of roughly 2.5 interest rate cuts by the end of the year, with the first cut anticipated at the Federal Reserve’s (Fed’s) July meeting. By the end of the month, markets were pricing in only one rate cut, scheduled for the Fed’s final meeting of the year in December. This is down notably from market expectations at the start of the year, when six interest rate cuts were anticipated.

The continued slide in market expectations for rate cuts throughout the year’s first four months was the major driver of the rise in interest rates over the same period. Although the changing expectations weighed on stock and bond prices in April, the good news is they should help limit future interest
rate–driven volatility because investors are no longer counting on more supportive monetary policy from the Fed in the months ahead.

The Takeaway

-Progress in combating inflation has stalled, causing investors to reassess their interest
rate views.

-Market expectations for rate cuts this year dropped from six at the start of the year to only one.

Market Risks Remain

As we saw in April, inflation and the Fed remain primary risks for markets, especially if we see further price increases. With that being said, there are other risks worth monitoring. Domestically, we’re likely to see further economic and political uncertainty as we approach November elections.

Abroad, there are a number of risks as well, highlighted by continued conflicts in the Middle East that have the potential to strain supply chains. After starting the year at roughly $70 per barrel, oil prices reached a 2024 high of more than $87 in April.

Other risks to monitor include a slowdown in China and relatively high stock market valuations. And, as always, the potential for unknown risks to negatively affect markets remains.

The Takeaway

-Risks remain for markets, both domestically and abroad.

-Domestic risks include rising inflation and November elections, whereas continued conflict in the Middle East and slowing growth in China highlight foreign risks.

Fundamentals Remain Solid

Despite the declines in April, market and economic fundamentals remain healthy. Although rising inflation and interest rates caused a downturn, the outlook from here is positive.

The economic backdrop remains supportive, as shown by strong hiring and spending growth during the month. In addition, continued solid earnings growth in the first quarter indicates economic momentum from the end of 2023 has carried over into 2024. With consumers spending and businesses continuing to hire and invest, economic factors are expected to continue to support markets in the months ahead.

Nonetheless, April’s declines serve as a reminder that markets are still subject to several risks and that short-term disruptions can pop up anytime. Given the potential for short-term uncertainty, a
well-diversified portfolio that matches investor goals and timelines remains the best path forward for most. If concerns remain, speak to your advisor to discuss your financial plans.

Disclosures: This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com

Authored by the Investment Research team at Commonwealth Financial Network.

© 2024 Commonwealth Financial Network