Northern Trust Asset Management is a global investment manager that helps investors navigate changing market environments in efforts to realize their long-term objectives.
Stocks and Bonds Fall as Rates Rise, U.S. Inflation Measure May Decelerate
Last Week Review
Global equities declined 2.9% across the major regions. Investment grade bonds lost 0.6% as interest rates continued to push higher. The two-year Treasury yield increased 0.09% to 4.99% and the 10-year yield rose 0.10% to 4.62%. Gold was one of the few major financial market assets that performed positively on the week. It gained 1.8%, adding to its strong year-to-date gain of 15.8%.
Markets Absorb Iran Attack on Israel
Market fears related to the tit-for-tat conflict between Israel and Iran have been mostly contained so far. Since Iran’s April 14 attack on Israel, oil prices have moved roughly 3% lower, and prices ended mostly flat following Israel’s response late last week. While details of Israel’s response have been somewhat murky, most reports have pointed to a smaller scale attack that may have been more geared toward sending a message rather than escalating the situation. Iran downplayed the attack. There is hope that a broader regional war may been avoided for now, but risks are high as both Israel and Iran have now directly engaged.
Fed’s Powell Indicates Patience on Rates
Federal Reserve Chair Jerome Powell in a policy forum commented that it will likely take “longer for confidence after recent data,” which shows a “lack of further progress on inflation”. He also said it is “appropriate to let policy take further time to work”. His comments were broadly consistent with maintaining higher interest rates for longer following recent strength in economic activity. U.S. economic data remained strong last week, including better-than-expected retail sales and more strong jobless claims data. In futures markets investors are pricing in under two Fed rate cuts down from more than six that futures indicated back in January.
U.K. Inflation Above Expectations
U.K. Consumer Price Index inflation was hotter than expected. Wage growth — a key watchpoint for the Bank of England — remained elevated and was also above estimates.
Chinese Economic Rebound Elusive
China’s data showed that its economic activity is neither in free fall nor a material rebound stage. Separately, U.S. President Joe Biden called for tariffs on China steel and aluminum. The immediate impact would likely be limited, but it could be a broader sign of the direction of U.S.-China trade relations.
This Week Preview
U.S. Inflation Expected to Decelerate
U.S. Personal Consumption Expenditures Price Index (PCE) for March is scheduled for release on Friday. Core PCE, which excludes more volatile food and energy prices, is expected to decelerate to 2.7% year-over-year from 2.8% in February. The month-to-month increase is expected to be 0.3%. This would be lower than the hotter-than-expected Consumer Price Index rise of 0.4% most recently, but likely still too high for the Fed’s comfort.
Political Update: Middle East Tension, Ukraine Aid, TikTok
The situation between Israel and Iran is still fluid. It remains to be seen whether the events will lead to a broader regional war that could pressure oil prices and complicate global growth and inflation dynamics. U.S. politics may also be in focus this week. Over the weekend, the House passed bills for Ukraine and Israel aid, as well as a bill that includes TikTok divestiture. The Senate is expected to take up the package of bills this week. The Senate is expected to take up the package of bills this week.
Tesla, Meta and Microsoft to Report First Quarter Earnings
Tesla (TSLA) is scheduled to report on Tuesday, followed by Meta (META) on Wednesday and Microsoft (MSFT) and Alphabet (GOOG) on Thursday. With about 14% of S&P 500 Index companies reporting first quarter earnings, aggregate earnings are on pace to grow 0.5% year-over-year. With most major U.S. banks having released their results, fundamentals have remained strong, but bank stocks have been weighed down by economic developments and disappointing guidance.
Source: Bloomberg for data, news developments and schedule of economic releases. Data as of April 21, 2024.
Rising Rates Complicate the Investment Outlook
Recent strength in the U.S. economy may mean the Fed will keep rates higher for longer than initially expected. Based on estimates, the next U.S. inflation indicator scheduled for this week likely will provide little reason for the Fed to change that course.
CORE PERSONAL CONSUMPTION EXPENDITURES PRICE INDEX
The index is a measure of the prices that people living in the U.S., or those buying on their behalf, pay for goods and services. It captures inflation or deflation across a wide range of consumer expenses and reflects changes in consumer behavior. The core index makes it easier to see the underlying inflation trend by excluding two categories — food and energy — where prices tend to swing up and down more dramatically and more often than other prices.
FEDERAL FUNDS FUTURES
Federal funds futures are contracts used to hedge short-term interest rate risk. They reflect the market's insight on the future course of the Federal Reserve's policy rate.
IMPORTANT INFORMATION
For Asia-Pacific (APAC) and Europe, Middle East and Africa (EMEA) markets, this information is directed to institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. The information contained herein is intended for use with current or prospective clients of Northern Trust Investments, Inc (NTI) or its affiliates. The information is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. NTI or its affiliates may have positions in and may effect transactions in the markets, contracts and related investments different than described in this information. This information is obtained from sources believed to be reliable, its accuracy and completeness are not guaranteed, and is subject to change. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor.
This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Indices and trademarks are the property of their respective owners. Information is subject to change based on market or other conditions.
All securities investing and trading activities risk the loss of capital. Each portfolio is subject to substantial risks including market risks, strategy risks, advisor risk, and risks with respect to its investment in other structures. There can be no assurance that any portfolio investment objectives will be achieved, or that any investment will achieve profits or avoid incurring substantial losses. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Risk controls and models do not promise any level of performance or guarantee against loss of principal. Any discussion of risk management is intended to describe NTI or its affiliates’ efforts to monitor and manage risk but does not imply low risk.
Past performance is not a guarantee of future results. Performance returns and the principal value of an investment will fluctuate. Performance returns contained herein are subject to revision by NTI or its affiliates. Comparative indices shown are provided as an indication of the performance of a particular segment of the capital markets and/or alternative strategies in general. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index. Net performance returns are reduced by investment management fees and other expenses relating to the management of the account. Gross performance returns contained herein include reinvestment of dividends and other earnings, transaction costs, and all fees and expenses other than investment management fees, unless indicated otherwise. For additional information on fees, please refer to Part 2a of the Form ADV or consult an NTI representative.
Forward-looking statements and assumptions are NTI or its affiliates’ current estimates or expectations of future events or future results based upon proprietary research and should not be construed as an estimate or promise of results that a portfolio may achieve. Actual results could differ materially from the results indicated by this information.
This information is intended for purposes of NTI and/or its affiliates marketing as providers of the products and services described herein and not to provide any fiduciary investment advice within the meaning of Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). NTI and/or its affiliates are not undertaking to provide impartial investment advice or give advice in a fiduciary capacity to the recipient of these materials, which are for marketing purposes and are not intended to serve as a primary basis for investment decisions. NTI and its affiliates receive fees and other compensation in connection with the products and services described herein as well as for custody, fund administration, transfer agent, investment operations outsourcing, and other services rendered to various proprietary and third-party investment products and firms that may be the subject of or become associated with the services described herein.
Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
Not FDIC insured | May lose value | No bank guarantee