Weekly Market Update: April 29, 2024

Alex Ralicki |

Stock market volatility picked up in April after a profitable—and at times tranquil—first-quarter performance for equities. The spike in volatility was fueled by a series of events, including rising geo-political concerns overseas, particularly in the Middle East, an increase in inflationary pressures in March, and growing sentiment that a Federal Reserve pivot on the interest-rate front is not imminent. The latter view was prompted by the stronger-than-expected March consumer and producer (wholesale) price growth and more-hawkish monetary policy commentary from several senior Federal Reserve officials, including Chairman Jerome Powell.

Concerns about inflation reaccelerating stateside pushed Treasury market yields higher. That is because Wall Street had recently priced in at least three reductions to the federal funds rate in 2024. Now, there is growing sentiment that possible cuts to the benchmark short-term interest rate will not come until later this year and will probably depend on data showing an overall downward trajectory in the pace of consumer and producer price growth.

A still-tight labor market likely puts minimal pressure on the Federal Reserve to change monetary policy course until more progress is seen on the inflation front. The nation created 876,000 jobs during the first quarter of 2024, and the unemployment rate remains at a level indicative of full employment. Investors should note that the next (April) reading on employment is due on May 3rd.

The spotlight has turned to Corporate America and the latest round of earnings reports. Our sense is that companies that produce weaker-than-expected results and/or issue reduced near-term prognostications will be penalized by Wall Street. Conversely, those entities that exceed expectations in the latest quarter will find support. Thus, we think those companies that have demonstrated a history of generating steady earnings and cash flow growth will remain in demand, especially for investors who are becoming more risk averse.

Conclusion: The building “high interest rates for longer” view on Wall Street prompted recent selloffs in the stock and bond markets. As noted above, this will likely put more attention on corporate profit growth in the near term. In this environment, we continue to like the stocks of high-quality companies in sectors that were undervalued entering 2024. 


Source: ValueLine.com