Latest / Markets with Megan: A Quick Financial Markets Update / Exploring the Intersection of Market Sentiment and Economic Data | Episode 128 | 04-29-2024
Transcript
- 0:02Megan Horneman: If you've been trying to wrap your head around some of the economic data that we got last week, we wanted to give kind of a deeper dive into some of those important economic indicators that we got information on.
- 0:12Megan Horneman: I'm Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors.
- 0:16Megan Horneman: We're coming to you today, on Monday, April 29th, and we're going to give you a little recap of our weekly insights and this is also on our webpage if you'd like to take a look at it.
- 0:26Megan Horneman: But what we wanted to do was take a deeper dive into the economic data that we got last week, because it was important and we got some mixed numbers from an economic standpoint and we got mixed results from the markets as well.
- 0:39Megan Horneman: So there were basically three main things that happened last week.
- 0:42Megan Horneman: First of all, we got the GDP report for the first quarter.
- 0:46Megan Horneman: We did markets with Megan on this, but we want to focus on the two of the things in there.
- 0:52Megan Horneman: First of all, the personal consumption.
- 0:54Megan Horneman: This is the biggest part of GDP and we did have a decent I guess you could say decent number on personal spending, but it was actually the lowest we've seen since the second quarter of 2023.
- 1:06Megan Horneman: So what we're seeing from this report is that the high credit card debt, the lower savings rate this is all starting to impact how consumers are spending.
- 1:16Megan Horneman: The other report that we got we got two different things on inflation last week.
- 1:20Megan Horneman: In that GDP report we got a shocking move higher from the prior quarter 3.7% on the price index versus 2% in the fourth quarter of last year.
- 1:31Megan Horneman: We also got the Fed's preferred inflation gauge and this came in on a monthly basis, as expected, but on a year-over-year basis we are stuck.
- 1:39Megan Horneman: We are basically growing 0.3% on a monthly basis, but on a year-over-year basis it's growing 2.8%.
- 1:47Megan Horneman: It's above the Fed's target rate and it just seems to be like the easy part of getting inflation down is behind us and now we're getting to that sticky part of inflation.
- 1:57Megan Horneman: There's a lot of details in these reports that we don't go fully into in these markets with Megan, but what we wanted to highlight here was this is a service inflation problem and when we looked at even the spending numbers or the inflation numbers on the GDP or the personal consumption, this is a service inflation problem.
- 2:15Megan Horneman: And what's scary for the Fed is it's very difficult for the Fed to tackle service inflation.
- 2:20Megan Horneman: They can't build more houses to make houses cheaper, they can't produce more oil to help energy prices and they don't have any control over insurance costs, and that was another big part of that.
- 2:29Megan Horneman: The last thing that came out last week that kind of turned the markets around was I'm getting some of the earnings reports from these magnificent seven.
- 2:37Megan Horneman: We got four of them last week.
- 2:39Megan Horneman: Now, while Meta and Tesla disappointed, you saw that Alphabet and Microsoft actually did better than expected, so the market got a rebound on those this week.
- 2:51Megan Horneman: We'll get.
- 2:51Megan Horneman: Apple will report on Thursday and then Amazon will report tomorrow.
- 2:55Megan Horneman: So what do we make of all this?
- 2:57Megan Horneman: The bottom line is that the uncertainty around when the Fed can cut rates is still very high Coming into this year.
- 3:03Megan Horneman: This May meeting that we have this Wednesday, people had anticipated we'd already be into our second rate cut.
- 3:09Megan Horneman: That's highly unlikely.
- 3:10Megan Horneman: Actually, we put that to a 0% chance and now we're seeing that rate cuts are being pushed out to the end of this year, with the potential of only one rate cut this full calendar year.
- 3:19Megan Horneman: When you look at the biggest risk that we see, not only to the economy but to the markets in the coming months, it's the consumer, because they make up so much of GDP, and it's inflation, because a lot of the rally and the PE expansion we've gotten in the equity market is completely due to the fact that the expectation the Fed would be cutting interest rates by now, and they're not and it continues to get pushed out.
- 3:43Megan Horneman: Now earnings have a tendency to have some short-term euphoria, so we might get some more, whether it's volatility on the upside or downside, after we get these mega cap names out of the equation.
- 3:55Megan Horneman: But eventually investors are going to be stuck with justifying high price to earnings multiples for stocks in an environment where interest rates are going to be higher for longer.
- 4:05Megan Horneman: Now we'll be back this week.
- 4:07Megan Horneman: We have a lot of information this week, so be prepared, I'm going to give you guys a bunch of different things.
- 4:12Megan Horneman: On Wednesday we have the ISM manufacturing report.
- 4:15Megan Horneman: We also will get the quarterly refunding from the Treasury.
- 4:19Megan Horneman: This has been something that's been fueling volatility in not only the bond markets but the equity markets in prior months.
- 4:25Megan Horneman: We will also get the ISM services report and we'll get the much anticipated jobless report, or jobs report, on Friday as well.
- 4:35Megan Horneman: So a lot of information.
- 4:37Megan Horneman: The Fed also meets on Wednesday, so we have a lot of stuff going through.
- 4:40Megan Horneman: We'll be back plenty of times this week to give more information, but if you have any questions, comments or feedback, please feel free to reach out to podcast at verdence dot com.
- 4:48Megan Horneman: Thank you,