The first two trading days of the week brought a relief rally to the S&P 500; just over 103 points were added to the index during those trading days. With Middle East tension drifting down and back to baseline there was little negative news to keep markets down. As earnings season began to pick up steam through the week, focus turned to company-reported financial results and guidance. If the first quarter’s 10% gain was driven by a Fed-fueled multiple expansion, any further upside for equities will have to be driven by earnings since strong economic data including resistant inflation will prevent the Fed from lowering interest rates in the near term.
With the focus turned to earnings, Mag7 member Meta Platforms reported, after market close on Wednesday, both earnings and revenue that beat market expectations. However, the stock plunged in extended hours trading and during Thursday’s session due to lowered revenue guidance that is a result of massive spending on projects ranging from mixed reality wearables to artificial intelligence. The lackluster guidance from Meta combined with a Thursday morning GDP report that soured market participants’ sentiment even further since the Bureau of Economic Analysis data displayed still sticky inflation and also shockingly lower economic growth. As a result, markets opened sharply lower for Thursday trading but did claw back some territory as the GDP report was digested. Traders and investors seemed to become more at ease with a sharply lower headline GDP estimate because evidence for ongoing services and residential investment spending was buried in the report.
Friday trading seem to be boosted by the positive news bestowed upon markets from two other Mag7 names, specifically Google parent company Alphabet and Microsoft. Both names reported strong top and bottom line results with Google even introducing a dividend. The semiconductor sector led the overall market higher with strong gains to end the week.
The chart below shows a daily price action chart for the S&P 500 index. SPX continues to follow its near term downtrend indicated by the light red trend line starting in early April. Notice that Friday’s intraday high touched this line, and then the market closed well below it.
Anticipating next week, SPX will be challenged to find nascent near term support from the green uptrend line. The shaded blue area continues to demonstrate what a 10% pullback would look like from the early April high point. The horizontal yellow line demonstrates what we see as strong support for SPX at 4800.
Durable Goods Data Pops
In March 2024, the United States witnessed a 2.6% month-over-month increase in new orders for manufactured durable goods, which slightly surpassed the market forecast of a 2.5% rise. This growth followed a revised increase of 0.7% in February. Source: U.S. Census Bureau
GDP Growth Disappointed Markets on Thursday Morning
In the first quarter of 2024, the US economy grew at an annual rate of 1.6%, a slowdown from the 3.4% growth observed in the previous quarter and falling short of the expected 2.5% increase. This marked the slowest growth rate since the downturns of early 2022, according to the preliminary estimate.
Consumer spending decelerated to 2.5% from 3.3%, primarily due to a decrease in goods consumption, which dropped by 0.4% compared to a previous increase of 3%. Conversely, service expenditures rose more quickly, achieving a 4% increase versus the prior 3.4%. Source: U.S. Bureau of Economic Analysis
Core PCE Price Index Consistent with Expectations
The Fed’s preferred measure of inflation rose 0.3% in March which was the same as the prior reporting period and in line with expectations. Source: U.S. Bureau of Economic Analysis
Personal Income Data Looks Good
Personal income grew 0.5% in March compared to the prior month which was in line with market expectations. Wages and salaries grew by 0.7% for the period, an important metric for the consumer dependent U.S. economy. Source: U.S. Bureau of Economic Analysis
Personal Spending Data Shows Consumers Continue to Spend
In March 2024, personal spending in the United States rose by 0.8% from the previous month, matching February's growth rate and exceeding the expected increase of 0.6%. The data for the last two months of the quarter look much better than January’s meager 0.1% growth. Overall, consumer spending seemed to pick back up after a post holidays January breather.
Spending in March on both goods and services increased. There was a notable 1.3% increase in spending on goods which was a significant acceleration compared to February's 0.8% increase. Spending on services grew by 0.6% although this growth was a slight decrease from February's 0.8%. Source: U.S. Bureau of Economic Analysis
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