Stock Market Nerd – Fed Meeting – May 4, 2024
The Federal Reserve maintained their benchmark rate as expected this week. Furthermore, they cut the pace of passive quantitative tightening from $60 billion per month to $25 billion. That was a more dovish cut than expected by $5 billion. That paired surprisingly well with Powell’s press conference. He acknowledged a lack of further progress in inflation data and how that will likely mean higher for longer. Conversely, he was given the opportunity to say another hike was feasible over and over again in the Q&A. You could feel how badly every journalist in that room wanted him to say it. He wouldn’t. He called another hike unlikely and thought policy was clearly restrictive enough as it is. This wasn’t overly surprising, but it was still good to hear as another hike began to creep into pundit expectations. Candidly, the data below screams economic cracks beginning to form and could easily mean a cut is coming sooner than expected. We’ll see.
I will stay laser-focused on these cracks, but as long as the downside risk (in my view) remains a mild recession, they will not impact my process. From purely a stock point of view, mild to moderate slowing or a mild recession means easier policy, less profit discounting and still strong growth for structural winners.
After this and the weak jobs data, 2 rate cuts are again expected in 2024. We’ve gone from 7 cuts expected… to 3 cuts… to maybe a hike… back to 2 cuts in about 6 months. My point? Nobody has any clue when rate cuts will begin or how quickly they will come. All I know is that it’s almost inevitable the next move is a cut and that my holdings are reasonably priced and executing well.
“I was around for Stagflation… I don’t see the stag or the flation.” – Powell
More Macro Data from the Week:
Output Data:
- The Chicago Purchasing Managers Index (PMI) for April came in at an ugly 37.9 vs. 44.9 expected and 41.4 last month.
- The Manufacturing PMI for April was 50 vs. 49.9 expected and 51.9 last month.
- The Institute of Supply Management (ISM) PMI for April was 49.2 vs. 50 expected and 50.3 last month.
- The Services PMI for April came in at 51.3 vs. 50.9 expected and 51.7 last month.
- ISM Non-Manufacturing Employment for April came in at 45.9 vs. 49 expected and 48.5 last month.
- ISM Non-Manufacturing PMI for April came in at 49.4 vs. 52 expected and 51.4 last month.
Inflation Data:
- Employment Cost Index rose 1.2% Q/Q in Q1 vs. 1% expected.
- The ISM Manufacturing Prices Index for April was 60.9 vs. 55.5 expected and 55.8 last month.
- Unit Labor Costs Q/Q for Q1 rose by 4.7% vs. 3.6% expected.
- Average Hourly Earnings M/M for April rose by 0.2% vs. 0.3% expected.
Employment and Consumption Data:
- Conference Board Consumer Confidence for April came in at an ugly 97 vs. 104 expected and 103.1 last month.
- ADP Nonfarm employment change for April was 192,000 vs. 179,000 expected.
- JOLTs Job Openings for March were 8.49 million vs. 8.68 million expected.
- Initial Jobless Claims were 208,000 vs. 212,000 expected.
- Nonfarm Payroll for April came in at 175,000 vs. 238,00 expected.
- Private Nonfarm Payroll for April came in at 167,000 vs. 181,000 expected.
