Earnings End, Quarter End Nears

Last week, Treasury yields spiked 23 bps to 4.31% after the disappointing CPI report. Investors’ rate-cut expectations for this year dropped to barely three cuts, half as many as expected in December of 2023.

With that, most equity markets struggled last week due to the U.S. inflation data further pushing out Fed easing expectations. Small and mid-cap stocks were hit particularly hard. The Russell 2000 dropped -2.08%. The S&P 500 gave back a modest -0.13% on the week.  The S&P 500 has now gone over 4.5 months without a drop of over -3.5% and is up +25% since it troughed in late October of last year. Small cap performance has lagged the S&P 500 by about 650 bps so far in 2024. Energy and material stocks posted gains despite softness elsewhere.

The inflation data cooled hopes of a Fed rate cut in the 1h2023 and sent yields broadly higher. The 10-year Treasury yield rose +23 bps on the week to 4.31%, while the 2-year rose +25 bps to 4.72%. No rate cut is expected at the FOMC announcement this Wednesday.

Rotation in the markets continued with many commodities strong.  Oil prices rose almost +4% last week, driven by reduced U.S. stockpiles combined with renewed geopolitical pressures. Oil prices rose above $80/bbl to end last week at $81.04 for the first time in four months. Adding to the week’s bullish move, the IEA increased its demand outlook for 2024.

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