by Bryan Perry

May 7, 2024

Over the past two weeks, investors have been on the receiving end of several key economic reports and high-profile earnings releases that have roiled the stock market, generating wide daily price swings.

For instance, there have been conflicting data on labor markets, in which the Employment Cost Index released on April 30 showed that compensation costs accelerated from the fourth quarter, leading to concerns about general price inflation staying above the Fed’s 2% target for longer than expected.

In response, bond yields spiked and the stock market swooned, but both the bond and stock markets steadied after Wednesday’s Federal Open Market Committee (FOMC) press release and press conference, and Friday’s release of the labor market data, which revealed non-farm payrolls increasing by a smaller-than-expected 175,000 jobs, with average hourly earnings up just 0.2%, the unemployment rate ticking up to 3.9%, and the average workweek coming in at a smaller-than-expected 34.3 hours.


Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

First off, the Federal Reserve policy statement from Chairman Jerome Powell was essentially what the market expected, holding Fed Funds unchanged at 5.25%-5.50%, with some hint that a rate cut for 2024 was not completely out of the question. The body of his message was that the central bank is pushing back its plans for rate cuts as inflation plateaus well above the bank’s 2% target rate. Meanwhile, the higher for longer narrative has helped to shore up the dollar against other currencies. The problem is debt.

For the current April-June quarter, the Treasury expects to borrow $243 billion in privately held net marketable debt. This estimate is $41 billion higher than the announcement made in January and begs the question of the level of new Treasury debt the global market can absorb. Thankfully, this topic is starting to matter to more key people, but it will likely be tabled until 2025, since 2024 is an election year.

This earnings season has also been a roller coaster in that coming into it, the bar was set pretty low. So far, roughly 77% of S&P 500 companies have reported positive earnings surprises and 61% have posted positive revenue surprises, but some Wall Street darlings cast a shadow of doubt over future earnings guidance. And yet, the S&P 500 benchmark index held its key support level at 5,000 to close the week at 5,127 and reclaim its 50-day moving average on the back of strong upside moves from non-Mag 7 stocks.

Investors should be grateful for the broadly bullish tone of earnings season. Though I noted some popular stocks that impressed or disappointed the Wall Street lemmings, on balance, business conditions for most companies that have reported first-quarter numbers are upbeat. However, it is very important for all of us to know and respect how quickly sentiment can shift if certain assumptions fall short of expectations.

With the first-quarter reporting season almost complete, the market’s bullish bias will now need to depend on economic data providing any new catalysts to keep the uptrend intact. Translated, the market needs to see data on inflation move in the right direction during the month of May. If so, bonds can rally further, which would remove a big market headwind. Friday’s dovish employment report and the pullback in oil prices last week is a good start, which served to move the needle in favor of the bulls for the near term.

SPX-ChartGraphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Whether rates have topped out is anyone’s guess at this point, the protracted sell off in the bond market leading up to the big jump in bond prices, per the employment data, shows just how jittery the bond market is and how it has become the ruling instrument of market sentiment and the driver of the narrative.

The benchmark 10-year sovereign rate is what drives sentiment for most bond traders, as it is a long-term predictor of risk that is not controlled by central banks, as is the case for short-term rates. A quick look at this list shows the U.S. dollar delivering the highest yield outside three rather risky emerging markets.

Global Table

To this point, I think the way the market has handled the shift in the Fed’s interest rate cut expectations is remarkable. Six months ago, the bond futures market pivoted hard in the early fall of 2023, anticipating no fewer than six quarter-point rate cuts in 2024. The greatest odds implied by the futures markets in the final quarter of 2023 priced in a year-end 2024 Fed funds rate of 3.75%-4.00%, representing six cuts, a 1.5% reduction from current levels in response to what was widely believed to be major slowdown.

As we all know by now, a recession did not materialize – despite 11 rate hikes. We are now on the doorstep of summer with the latest set of economic data points forecasting a slowing of sorts that might help resolve the inflation problem that has handcuffed the Fed – and also frustrated millions of families across the country having to manage higher prices in so many areas of the economy at the local level.

Core inflation is monitored alongside headline inflation, which measures the changes in the prices of all goods and services in an economy. The headline inflation rate is typically more volatile than core inflation due to the impact of food and energy prices, which can fluctuate far more rapidly. The irony of this carve-out of food and energy is that consumers care greatly about these two metrics in their weekly budgets.


Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The Fed is looking at the same charts that show headline and core inflation leveling out at the 3.8%-4.0% range (above). In past times, this would seem to be a “new normal” that could be lived with. But it is my view that internally, the Fed is terrified of the size, growth rate, and cost to service the $34+ trillion in federal debt, and there seems to be very little, if any, coordination or collaboration between the Federal Reserve, the Treasury and Congress to as to how to best manage fiscal and monetary policy right now.

This week’s upcoming auctions of $67 billion in 10- and 30-year Treasury Bonds, along with $58 billion in 3-year Notes – for a total of $125 billion in new supply – will certainly test the appetite of global buyers of longer-term U.S. debt at a time when inflation is, for lack of better expression, a “jump ball.”

One good (soft) employment report last Friday does not make for a trend. The bond market caught a solid bid on the weaker jobs data and other recent evidence of slowing growth. Some newfound conviction emerged last week that maybe, just maybe, the inflation genie can be put back in the bottle. Let’s hope so.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Bryan Perry

Bryan Perry

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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