The Unexpected Roadblock in the 2024 Stock Market Surge
The much-anticipated stock market rally of 2024 has hit a sudden snag, leaving investors puzzled and cautious. What caused the once unstoppable momentum to come to a grinding halt?
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Unfortunately, the impressive rally in stocks that was happening in 2024 has suddenly come to a stop.
The S&P 500 index has dropped by 4.6% in April. This marks the first negative month for all three major US indexes since last October. The Dow Jones Industrial Average is close to erasing its gains since the beginning of 2024, with only a 0.2% increase. Meanwhile, the S&P 500 is up by 5.1% and the Nasdaq Composite has seen a 3.9% increase.
CNN’s Fear & Greed Index, which evaluates seven market sentiment indicators, ended Thursday with a "fear" reading, a shift from "greed" just a month ago.
Strong economic data and persistent inflation have caused Wall Street to delay its predictions for when the Federal Reserve will start reducing interest rates. Additionally, escalating tensions in the Middle East have contributed to a rise in oil prices.
Recent data revealed that inflation continues to exceed the Fed's 2% goal. In March, employers added an impressive 303,000 jobs, surpassing forecasts. Furthermore, consumer spending at US retailers increased for the second straight month, indicating the strength of American consumers despite interest rates being at a 23-year high.
Fed Chair Jerome Powell mentioned on Tuesday that rate cuts may be delayed and the central bank will wait for more signs of inflation to ease before making a move.
Traders are now predicting that the Fed will start lowering rates in either July or September, based on the CME FedWatch Tool. Initially, investors were anticipating up to six rate cuts in 2024, with the first one expected in March.
Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, believes investors should be prepared for a higher-for-longer regime in terms of both inflation and interest rates. In a note on Thursday, he shared this viewpoint.
The International Monetary Fund recently upgraded its forecast for American economic growth this year. However, the organization also warned that inflation will be challenging to control. Despite the US being a key driver of global growth, the IMF noted that its economy is currently "overheated".
IMF chief economist Pierre-Olivier Gourinchas emphasized the need for a careful and gradual approach to monetary easing by the Federal Reserve in a recent blog post discussing the agency's outlook.
This week, bond yields have surged as investors speculate that interest rates will stay high for a longer period. According to Tradeweb, the 10-year US Treasury yield was at 4.65% at 3 pm ET on Thursday.
Investors were hopeful that corporate earnings would help jumpstart the stagnant rally, but even with a strong start to the season, excitement among investors has been lacking. About 13% of S&P 500 companies have already reported their quarterly results. According to FactSet data, the blended first-quarter earnings growth, which combines estimates with actual results, stands at approximately 0.9%. Despite this, stocks have continued to struggle.
Adding to the challenges facing Wall Street are escalating tensions in the Middle East. Over the weekend, Iran conducted airstrikes on Israel in response to a suspected Israeli strike on its embassy compound in Syria earlier in the month. In retaliation, Israel reportedly carried out a strike inside Iran, as confirmed by a US official to CNN on Friday. While Israel has not provided any comments, Iranian officials and state-aligned media have been downplaying the incident.
Oil prices initially rose after news of the attack on Iran, but later dropped as the limited impact of the situation became clear.
Brent crude futures, the global standard, fell by 0.4% to $86.80 per barrel at 6:45 am ET, after earlier surging over 3%. Similarly, US crude futures decreased by 0.3% to $82.50, reversing their earlier increases. Despite the recent declines, both contracts have experienced a 15% increase since the beginning of the year.
Investors are turning to safer options instead of stocks, with gold futures gaining popularity this month. Traders are looking for protection against geopolitical uncertainties and ongoing inflation. The most traded gold futures contract closed at $2382.30 per troy ounce on Thursday.
Meanwhile, US mortgage rates have climbed above 7%, hitting their highest mark since November.
This week, mortgage rates went up significantly, surpassing the important 7% mark and worsening America's home affordability issue. According to the latest data from Freddie Mac released on Thursday, the average 30-year fixed-rate mortgage was at 7.10% for the week ending April 18, higher than the 6.88% from the previous week. Compared to a year ago, the average rate was 6.39%.
Hitting the 7% mark is a significant milestone that hasn't been reached this year.
Mortgage rates are going up because it's believed that the Federal Reserve won't be lowering interest rates in the near future. Even though the Fed doesn't determine mortgage rates directly, its decisions have an impact on them. The Federal Reserve is holding off on making any changes due to consistently high inflation numbers.
Sam Khater, Freddie Mac’s chief economist, stated that as rates continue to increase, potential homebuyers are faced with the decision of whether to purchase now before rates go up even more, or wait in anticipation of potential decreases later in the year.
There is a possibility of mortgage rates rising further this year if inflation remains stagnant or worsens.
Read more here.
Apple plans to spend more in Vietnam as it looks beyond China
Apple is considering purchasing more components from Vietnam, following a growing trend among global tech companies to diversify their supply chains, reduce expenses, and explore new markets. According to a report by my colleague Anna Cooban, CEO Tim Cook expressed this intention during a meeting with Vietnamese Prime Minister Pham Minh Chinh in Hanoi on Tuesday, as stated by Vietnam's government.
Apple has invested nearly $16 billion in Vietnam through its supply chain since 2019, as reported by the government. This has resulted in the creation of over 200,000 jobs in the country.
In a statement, Cook expressed Apple's readiness to further collaborate and invest in Vietnam.
His visit emphasizes Vietnam's increasing significance for global companies seeking options to China amidst rising trade tensions between Beijing and the West in recent years. If you want to learn more, click here.
Editor's P/S:
The recent market downturn, marked by a sharp decline in the S&P 500 index, has raised concerns among investors. Fears of persistent inflation, rising interest rates, and geopolitical tensions have dampened the previously impressive rally in stocks. The shift in sentiment from "greed" to "fear" highlights the market's sensitivity to macroeconomic factors.
While corporate earnings have provided some optimism, it has not been enough to counterbalance the broader economic headwinds. Escalating tensions in the Middle East have further contributed to uncertainty, leading investors to seek safer assets such as gold. The rise in mortgage rates, surpassing the 7% mark, has also impacted the housing market, making it more challenging for potential homebuyers. The article underscores the complexities of the current financial landscape, emphasizing the need for investors to navigate cautiously and consider a diversified portfolio approach.
