Weekly Market Update – May 10, 2024

Quick Takes

• Global stocks are riding a three-week win streak despite entering the historically challenging “Sell in May and Go Away” period. The S&P 500 gained +1.9% for the week, while the Nasdaq and Russell 2000 were up +1.1% and +1.2% respectively.
• Yields were little changed for the week with the 2-year U.S. Treasury up +5 basis points and the 10-year U.S. Treasury down -1 basis point. The Bloomberg U.S. Aggregate Bond Index was up +0.1% for the week and the Bloomberg Global Aggregate ex U.S. Bond Index dipped -0.3%.
• Economic releases and earnings reports were light for the week and trading volumes were low. The Federal Budget release showed a surplus for April on higher-than-expected tax receipts. Consumer Credit grew much lighter than expected and the preliminary read on May consumer sentiment weakened much more than forecasted.

Stocks are Off to a Great Start in May, Bonds Okay Too

There’s an old adage on Wall Street that says, “Sell in May and Go Away” which refers to May being the month when investors should consider selling stocks and leave the market until October, when historically markets perk up again. But in 2024, investors that stuck around in May have been rewarded so far. All three major U.S. equity indexes are up nicely so far in May. The benchmark S&P 500 Index closed the week with a gain of +1.9%, notching a third straight positive week, the longest winning run since February. The index is up +3.8% in May and has now erased nearly all of its April losses. The Nasdaq Composite Index was up +1.1% for the week while the Russell 2000 Index advanced +1.2%. The Nasdaq and Russell also have three-week win streaks and are both up +4.4% so far in May. Perhaps the only drawback of the week was that share volumes traded were especially low over much of the week. T. Rowe Price noted that Wednesday saw the lowest notional (in terms of the value of shares traded) session of the year and its third-lightest volume (in terms of number of shares traded) session. That’s not terribly surprising given how little was on the economic calendar and with the bulk of earnings season already behind us.

Overseas stocks rallied too, but by lesser magnitudes. Developed market international stocks (as measured by the MSCI EAFE Index) were up +1.6% for the week and are up +2.9% in May. The MSCI Emerging Markets Index rose +1.0% for the week and is up +2.5% for the month. 

On the bond side, yields were little changed with the 2-year U.S. Treasury yield up +5 basis points to finish the week at 4.87%, while the 10-year U.S. Treasury yield was down -1 basis point to finish the week at 4.50%. The Bloomberg U.S. Aggregate Bond Index was up +0.1% for the week but is down -2.5% for May so far. Non-U.S. bonds, measured by the Bloomberg Global Aggregate ex U.S. Bond Index, slipped -0.3% for the week and are down -2.6% month-to-date.

Chart of the Week

The Treasury Department reported that the U.S. Federal Budget Surplus expanded to +$209.5 billion in April from +$176.2 billion a year earlier, below expectations for a surplus of +$250 billion. The surplus was driven by Individual Tax Receipts that outpaced increased Government Spending. April’s surplus was up +19% from the same period in 2023. Spending increased by +23% to $567 billion, while Tax Receipts rose by +22% to $776 billion, boosted by higher tax revenue from individuals and businesses. In the first six months of the fiscal year, the Budget Deficit decreased by -$70 billion, or -8%, to $855 billion. Receipts for the period grew by +10% to $2.964 trillion, while outlays rose by +6% to $3.819 trillion. Interest Costs on the National Debt, which increased by +36% to $624 billion year-to-date, remained a significant component of outlays, second only to the Social Security program for seniors in individual line item expenses. Spending will likely increase in coming months as Congress doles out recently passed supplemental spending to support key allies.

Federal Budget Balance

April as individual tax deposits came in stronger than expected

Source: U.S. Bureau of the Fiscal Service, Trading Economics.

Economic Review

• U.S. Consumer Credit rose by $6.3 billion in March, far below expectations for $15.0 billion, and down from $15.0 billion the prior month (which was revised up from $14.1 billion). That’s a +1.5% annual growth rate, down from the +3.6% annualized growth the prior month. Growth for revolving credit, such as credit cards, increased by +0.1% after a +11.3% rise the prior month. Nonrevolving credit, which tends to be much less volatile than revolving credit and includes auto as well as school loans, increased +2.0% following the prior month’s +1.4% increase. The data from the Federal Reserve is not adjusted for inflation and does not include mortgage loans, which is the largest category of household debt. The sharp pullback in consumer borrowing raises concerns but more data is needed to see if it materializes into a trend.
• According to the latest Senior Loan Officer Opinion Survey (SLOOS) from the Federal Reserve, lending conditions were little changed in the first quarter of 2024. The net percentage of banks raising credit standards for commercial and industrial loans ticked up to +15.6% from +14.5% in the fourth quarter of 2023. For credit cards, the net percentage of respondents reporting tightening standards was little changed as well, to +21.2% from +22.9%. Credit demand, according to respondents, was similarly consistent.
• The Census Bureau reported Wholesale Inventories for March fell -0.4%, unchanged from the flash estimate two weeks ago, and down from a +0.2% rise the prior month. Year-over-Year (YoY) inventories were down -2.3%, the seventh negative YoY reading in a row. Inventories are goods produced for sale that have not been sold yet. The depletion of private inventories was subtracted from the U.S. GDP in the first quarter. Inventories have only added to GDP growth once in the past five quarters. Wholesale Trade Sales declined -1.3% for the month, far below the expected +0.8% rise, and the prior month’s +2.0% rise. Wholesale inventories data isn’t adjusted for inflation. Year-over-Year Wholesale Trade Sales were up +1.4%. The Inventory-to-Sales Ratio slipped to 1.35 months, which is down from the 1.36 the prior month and 1.40 a year ago. The ratio reflects how long it would take a company to sell all the goods sitting on warehouse shelves. The lower readings vs. last year suggest it’s taking less time for companies to sell their goods.
• The preliminary reading of the May University of Michigan Consumer Sentiment Index weakened to 67.4 from 77.2 in the final reading from the prior month, well below expectations of 76.2. The Current Economic Conditions component was 68.8, down from last month’s 79.0 where it was expected to stay. The Consumer Expectations component fell to 66.5 from 76.0, missing expectations of 75.0. One-year inflation expectations ticked up to +3.5%, above expectations to stay at the prior month’s +3.2%. The five-year inflation expectations came in at +3.1%, a tick above last month’s +3.0% where it was expected to stay. “While consumers had been reserving judgment for the past few months, they now perceive negative developments on a number of dimensions. They expressed worries that inflation, unemployment, and interest rates may all be moving in an unfavorable direction in the year ahead,” said Joanne Hsu, director of the survey of consumers at the University of Michigan.
• Weekly MBA Mortgage Applications rebounded +2.6% for the week ended May 3, following the prior week’s -2.3% drop. The Purchase Index was up +1.8% following a -1.7 dip the prior week. The Refinance Index jumped +4.5% following a -3.3% drop the prior week. The average 30-Year Mortgage Rate fell to 7.18%, the first drop in five weeks.
• Weekly Initial Jobless Claims were up 22,000 to 231,000 for the week ended May 4, above expectations for 212,000. The prior week was revised to 209,000 from 208,0000. The number of people already collecting unemployment claims (i.e., Continuing Claims) rose to 1,785,000 in the week ended April 27, above consensus estimates for 1,782,000. Last week’s reading of 1,774,000 was revised down from 1,768,000.

The Week Ahead

All eyes will be on the latest inflation data coming this week. The BLS will report wholesale inflation (PPI) on Tuesday, but it will be the consumer inflation (CPI) report on Wednesday that will garner heavy attention. Other economic data to watch next week will include the National Federation of Independent Business’ (NFIB) Small Business Optimism Index for April on Tuesday, and the Census Bureau’s Retail Sales data for April on Wednesday. On Friday, the Conference Board will release its Leading Economic Index (LEI) for April. Housing data and a few sentiment surveys will round out the week’s events.

The first quarter earnings season will continue along next week, with results coming from retail heavy weights Home Depot on Tuesday and Walmart on Thursday. Other notable names that will report include Chinese e-commerce firm Alibaba and networking giant Cisco on Wednesday as well as Applied Materials and Deere on Thursday.

Did You Know?

BRICK-AND-MORTAR – The share of last year’s e-commerce orders that involved physical stores increased to 42%—up from about 27% in 2015, according to research firm GlobalData. Online shopping is saving bricks-and-mortar establishments as retailers increasingly use them as fulfillment hubs (Source: The Wall Street Journal).

DATA STORAGE – The increase in the amount of U.S. data-center space in 2023 jumped to 23%, with a record amount under construction. That’s thanks to the powerful new computer chips in artificial intelligence-enabled products that sift through vast amounts of information and images to make decisions. The building boom means more business for companies that provide generators, batteries, transformers, and other electrical gear for data centers (Source: CBRE, The Wall Street Journal).

CHARGE IT – The average credit card balance for 22- to 24-year-olds in the last quarter of 2023 increased to $2,834. That’s up from an average inflation-adjusted balance of $2,248 in the same period in 2013. Inflation, higher rent, and student debt are largely to blame (Source: TransUnion, The Wall Street Journal).

This Week in History

HAPPY BoA DAY – On April 6, 1870, Amadeo Giannini was born. In San Francisco in 1904 he founded the Bank of Italy to serve the city’s burgeoning working class. It later financed the Golden Gate Bridge and lent David Selznick the money to finish filming “Gone With the Wind.” Known today as Bank of America, it is one of the world’s biggest financial services firms (Source: The Wall Street Journal).

Asset Class Performance

Source: Bloomberg.

Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by 30% US Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4% Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.