Weekly Market Update: May 13, 2024

The nation added an estimated 175,000 jobs in April. That figure fell well short of both the consensus calling for a 240,000 increase in nonfarm payrolls and the March reading of 315,000. The unemployment rate ticked up, from 3.8% to 3.9%, indicating some slackening in the labor market. The Federal Reserve, which is trying to slow down the pace of economic growth with the hope of reining in inflation, had to like the softer-than-expected job creation figures and the decrease in the rate of wage growth. The average hourly wage increased 3.9% year over year, down from the 4.1% pace seen in the previous month.

Nevertheless, inflation remains sticky. There was a reacceleration in the pace of consumer and producer price growth over the first three months of 2024. The Personal Consumption Expenditures (PCE) Price Index, which is the assessment of inflation most closely watched by the Federal Reserve, increased 3.4% in the first quarter, which was above forecasts and up sharply from the 1.8% increase in the final quarter of 2023. The core PCE, which excludes the more-volatile food and energy components, jumped 3.7% last quarter, up from 2.0%. With prices for many commodities still elevated, this may make it more difficult to bring price growth closer to the Fed’s target of 2%.

Is the performance of the gold market indicating that some problems lie ahead? In recent months, investors have been buying gold to protect their portfolios from inflationary pressures. The price of the precious metal also is being driven higher by heightened geopolitical tensions, including fighting in the oil-rich Middle East region. Central banks see gold as a long-term store of value and a safe haven during times of economic and international turmoil.

First-quarter earnings season has provided support for equities. Of the 80% of the S&P 500 companies that have reported results, more than 75% announced positive earnings surprises. The S&P 500 Index is on pace to deliver profit growth of around 5%, which was needed to justify the elevated price-to-earnings multiple for the index.

Conclusion: With continued uncertainty about inflation and how the Federal Reserve will react to upcoming price data, we continue to recommend a portfolio headed by the stocks of high-quality companies. 

Source: ValueLine.com