Executive Summary of Major U.S. Economic and Geopolitical Events Affecting Financial Market Trends; April 15 to April 19, 2024

March Retail Sales Come in Strong

In March 2024, U.S. retail sales experienced a 0.7% increase from the previous month, outperforming the expected 0.3% and following a revised increase of 0.9% in February. This indicates sustained strong consumer spending. Sales improved in eight of thirteen categories analyzed. After an initially positive open, SPX continued to walk down a new downward trend line identified in last week’s post.

Building Permits Slump as High Mortgage Rates Put the Breaks on U.S. Housing Market

In March 2024, the issuance of single-family home permits fell by 5.7% to a five-month nadir of 973 thousand, while permits for multi-unit buildings decreased by 1.2% to 485 thousand. Headline building permits issued in the United States dropped by 4.3% to a seasonally adjusted annual rate of 1.458 million. This downturn reversed the 2.3% rise noted in February and did not meet the anticipated market forecast of 1.514 million. This decline has brought permits to their lowest point since July of the previous year indicating ongoing weakness in the housing market amid historically high borrowing costs.

Chairman Powell Affirms Hawkish Fed Officials’ Sentiment Tuesday Afternoon

Speaking at a moderated discussion at the Wilson Center, Federal Reserve chairman Jerome Powell stated there has been a “lack of further progress” on bringing inflation under control and “recent data have clearly not given us greater confidence”. These hawkish comments come after Mr. Powell stated at the last FOMC press conference in late March that he expected to cut interest rates three times this year. The comments are hardly a surprise given multiple Fed governors whom have expressed public doubt about the near term need for rate cuts.

Israel Responds to Last Weekend’s Iranian Attack

The Israeli war cabinet spent the early part of this week debating their response to last weekend’s Iranian aggression. Israeli officials including military chief Lt. Gen. Herzi Halevi stated Monday Israel would respond in some way. That response seems to have come and gone late Thursday night and early Friday morning as reports of a small, focused Israeli drone attack on an airbase in central Iran. Brent crude prices initially spiked above $90 per barrel Thursday evening but then fell back as it became clearer the attack was relatively restrained. Importantly, as reported by Reuters, Iran has stated it does not plan to retaliate to the latest Israeli action. Nonetheless, Middle East tensions remain elevated due to the fact a war between Iran and Israel once waged in the shadows has now been escalated to blatant attacks on each state’s sovereign territory.

Asset Allocation Reset Underway as Market Participants Digest Higher for Longer Interest Rates

SPX put in a significant retracement this week as the combination of strong economic data and sticky inflation caused investors to rethink their, to this point, “risk-on” or equity focused portfolios. The downtrend in SPX price action is apparent in the chart below. Despite several days of futures moving into positive territory before regular trading, the bears took control and prevented the S&P 500 from seeing any positive growth this week. The NASDAQ also had its worst weekly performance since 2022. Despite this week’s pullback, equity markets are still close to all time highs. As the reality of a hawkish Fed became more clear this week, market participants seemed to begin adapting their asset allocations to include more bonds and less stocks. Look no further than this WSJ article which details pension fund managers’ money moves.

A daily chart of SPX price action after market close on Friday April 19, 2024 shows six consecutive trading days in the red as a selloff grew stronger into the week. The blue shaded area depicts a 10% pullback over the course of two months measured from the March 28 intraday high. If price action breaks below the 100 day MA, SPX would next have possible support at the 200 day MA, just over 10% from the March 28 intraday high.

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