S&P 500 Continues Reviving on Slowing U.S. Job Growth Numbers

The S&P 500 (Index: SPX) was headed for a losing week, but got good news in the form of slowing U.S. job growth numbers late last week. While not necessarily as good for Americans, the news increased the likelihood the Fed will react to boost the U.S. economy by cutting interest rates more than once in 2024.

That prospect provided enough momentum for the S&P 500′s to record its second up-week of the second quarter of 2024. The index ended the trading week at 5,127.79, up over 0.5% from where it closed the preceding week.

The CME Group’s FedWatch Tool continued holding steady in anticipating the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 18 September (2024-Q3) for the third week in a row. However, the tool now projects the Fed will start a series of 0.25% rate cuts on that date that will continue well into 2025 at 12 week intervals.

The trajectory of the S&P 500 remained consistent with investors focusing on 2024-Q3 in setting current day stock prices. Moreover, the trajectory of the index looks set to rejoin the dividend futures-based model‘s projections associated with this future quarter in the next two weeks.

The deviation between the model’s trajectories and the actual trajectory of the index is attributed to how the projections are generated. Because its projections are “locked-in” once it gets within a 30-day window of the present, if something unexpected happens to prompt investors to alter their outlook for the future within that period, it results in a short-term deviation between the model’s projections and the S&P 500′s trajectory. At least, until the trajectory gets outside the “locked-in” window of when the unexpected event began.

In a little over a week, the actual trajectory of the S&P 500 appears set to rejoin the model’s projections that incorporate the information investors absorbed a little over 30 days earlier when an unexpected resurgence of inflation prompted them to push back their expectations for when rate cuts would start in the U.S.

Speaking of absorbing information, here’s our summary of the market-moving headlines of the trading week ending on Friday, 3 May 2024.

Monday, 29 April 2024

• Signs and portents for the U.S. economy:

• Oil dips on Israel-Hamas peace talks, slim near-term US rate cut hopes
• US regulators seize troubled lender Republic First, sell it to Fulton Bank

Fed minions thinking about when, whether to cut interest rates in 2024:

• Fed in holding pattern as inflation delays approach to soft landing

• Brokerages shift Fed rate-cut expectations to September after consumer price data
• Inflation-wary US rate options market cautiously prices for 2024 Fed hike

Bigger trouble, stimulus developing in China:

• China’s Big Five lenders see margins shrink in the first quarter
• China industrial profits fall in March, stir doubts about economic recovery

• China’s April factory activity likely expanded at slower speed: Reuters poll

Chinese property shares rally on stimulus hopes

BOJ minions start propping up yen:

• Japan’s yen surges against dollar on suspected intervention

• Why has the Japanese yen been so weak?
• History of Japan’s intervention in currency markets

ECB minions excited Eurozone inflation is slowing:

• Central Europe’s rate-setters have pause for thought
• ECB’s Knot: increasingly confident about disinflation

Nasdaq, S&P, Dow ended higher in a choppy session as investors shift attention to the Fed

Tuesday, 30 April 2024

• Signs and portents for the U.S. economy:

• US labor costs increase more than expected in first quarter

• US job openings slide to three-year low as demand for labor gradually eases

Oil falls to 7-week low on surprise US storage build, Middle East hopes

Fed minions thinking about what to do with their balance sheet:

• Fed’s balance sheet plans could take center stage this week

Bigger trouble, stimulus developing in China:

• China’s factory, services activity growth slows in April
• China to step up support for economy, flexibly use policy tools, Politburo says

BOJ minions happy with data they like:

• Bank of Japan upbeat on consumption, service price outlook
• Japan March factory output rises as vehicle production recovers

Growth signs in the Eurozone, ECB minions looking forward to rate cuts:

• Euro zone grows more than expected in Q1 after recession

• German economy skirts recession, helped by construction and exports

Euro zone inflation steady in April, reinforcing ECB rate cut case

• ECB’s Villeroy: Inflation data boosts confidence in June rate cut
• ECB should start cutting rates in June if inflation keeps falling, De Cos says

Nasdaq slides ~2%, Dow and S&P shed over 1% each as Wall Street ends April in the red

Wednesday, 1 May 2024

• Signs and portents for the U.S. economy:

• Oil prices rebound after closing at seven-week low
• US job openings slide to three-year low as demand for labor gradually eases

Fed leaves rates unchanged, flags ‘lack of further progress’ on inflation

• Fed’s Powell says looming US election will not sway rate decisions
• FOMC holds rates in place and will slow balance sheet drawdown

• Fed announces reduction in balance sheet runoff pace

More Fed officials ready to say goodbye to low-rate world

BOJ minions intervenes to support falling yen:

• Japan’s yen climbs against US dollar amid signs of intervention

• BOJ saw need to let markets drive yields upon March exit, minutes show
• For Japan Inc, the weak yen may be too much of a good thing

ECB minions push back date Eurozone inflation will hit its target:

• ECB hopeful euro zone inflation can hit 2% target mid-2025, de Cos says

Nasdaq, S&P, Dow’s Fed-sparked gains cool off, but bonds rise as Powell says hike unlikely

• S&P 500, Nasdaq end lower after Fed rate decision, Powell press conference

Thursday, 2 May 2024

• Signs and portents for the U.S. economy:

• Weak US productivity could threaten Fed’s ‘soft landing’ hopes

• US productivity slows sharply in first quarter

US high yield spreads still tight despite pick-up in distress

BOJ minions get desired result after propping up Japan’s yen:

• Yen surges on suspected intervention, 160 seen as key level

• Yen: Ex-BOJ official predicts Japan will keep intervening
• Japan’s May 1 intervention may have cost $23.6 bln, BOJ data shows

Bigger trouble developing in Eurozone as ECB minions get reason to cut interest rates:

• Euro zone factory activity takes turn for the worse in April, PMI survey shows
• ECB’s Stournaras sees just three rate cuts in 2024 on strong growth
• ECB should accumulate data between rate cuts, chief economist says

Nasdaq, S&P snap two-day losing streak while Dow also advances ahead of Apple results

• Wall Street ends higher as Fed signals dovish bias; jobs report eyed

Friday, 3 May 2024

• Signs and portents for the U.S. economy:

• Oil settles down on US jobs data, steepest weekly loss in 3 months
• US job gains fewest in six months as labor market cools
• US service sector contracts in April; price pressures reaccelerate

Fed minions thinking about what their inflation target should be, might try being clearer about what their dot plot rate forecast means:

• NY Fed’s John Williams says 2% inflation target is ‘critical’ for monetary policy
• Fed’s Goolsbee: US rate-path ‘dot plot’ needs more context
• Fed’s Bowman supports current policy stance but still sees inflation risks

Dovish Fed, ‘Goldilocks’ jobs report helps S&P 500 notch back-to-back weekly gains

The Atlanta Fed’s GDPNow tool is forecasting an annualized real GDP growth rate of 3.3%, down from its initial forecast of +3.9% growth in the previous week.

Image credit: Microsoft Bing Image Creator. Prompt: “An editorial cartoon of a Wall Street bull sitting up after having received CPR from a paramedic wearing a name badge that says ‘RATE CUTS’”.