By Rick Schwerd | May 03, 2024
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for our next update on May 17.
Goldilocks Employment Report
Markets rallied early this morning after receiving a “not too hot, not too cold” labor market report. The economy added a lower than expected, but still solid, 175,000 jobs in April. The unemployment rate ticked up one-tenth of a percentage point to 3.9 percent. Average Hourly Earnings dropped to 3.9 percent year-over-year, its lowest level since May 2021, a good sign for inflation. The number of job openings dropped to 8.49 million, its lowest level since March 2021.
The numbers above may appear disappointing, trending in a negative direction. However, the number of job gains and the unemployment rate are characteristic of a healthy labor market. The Average Hourly Earnings gain and number of job openings remain well above pre-pandemic levels. All-in-all, the report showed a solid labor market, without being overheated, which would fuel inflation. Both equity and bond markets are rallying significantly early this morning.
Fed Keeps Rates Steady
Not surprisingly, the Federal Reserve kept the Federal Funds Rate unchanged at their Open Market Committee meeting this week. Federal Reserve Chairman Jerome Powell kept a fairly optimistic tone in his press conference following the meeting, stating that interest rates are currently restrictive, and that inflation was likely to resume its decline. However, a string of disappointing readings on prices and wages have resulted in higher bond yields and more volatile equity markets recently.
Prospects of further rate hikes remain low; nevertheless much anticipated rate cuts have continued to be pushed back. It really comes down to the Fed needing to see a period of improving inflation data before cuts are back on the table. There are some signs of hope. The Bloomberg Commodity Index recently rolled over and one of the biggest drivers of inflation recently, car insurance, is a lagging inflationary component and is likely to moderate over the coming months.
Solid First-Quarter Earnings Season
According to Earnings Scout, as of Thursday morning, 75 percent of S&P 500 companies had reported first-quarter earnings. Of those, 78 percent of companies beat estimates, which is just about average for the past three years. Importantly, company estimates for second and third-quarter earnings have trended up over the past month, a positive sign for equities. Evercore-ISI estimates that when it’s all said and done, earnings should be up 5.5 percent for the quarter. They also note that companies that miss both earnings and revenue estimates are getting penalized more this quarter, with a share price loss of 5.2 percent vs. a 3.1 percent average. This is likely due to the volatility we have seen in markets over the past month.
Tough April for Stocks
Equity markets broke a five-month winning streak in April. The broad market S&P 500 lost 4.16 percent during the month, its worst performance since last September. The more value-oriented Dow Jones Industrial Average lost 5 percent, its worst month since September 2022. The tech-heavy NASDAQ lost 4.41 percent. Equity markets remain up for the year, however. With Fed Chairman Powell’s positive spin on the economy and today’s favorable labor market report, markets have made up some of the lost ground. The S&P 500 is now up 7.64 percent this year. Given the strong returns of the prior five months and the higher interest rates previously mentioned, it was not surprising that we got a pullback in equities. We are hopeful that the markets can build on the solid earnings season and regain their upward momentum.
Review Your Financial Plans and Goals
Hopefully all of you have survived another tax season. Having gathered your financial data and submitted tax returns, this may be a good time to update financial, retirement and estate plans. It is also a good idea to inform your investment advisor of your effective federal and state income tax rates. Please feel free to reach out to us with any questions or to set up a meeting to discuss these matters.
As always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out to us at (518) 415-4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a Senior Investment Officer at Glens Falls National Bank. He oversees individual and corporate retirement plans, personal trusts, investment management accounts, foundations and not-for-profit relationships. He is also co-portfolio manager of the proprietary North Country Large Cap Equity Fund.