Global Equity Weekly

May 03, 2024 | 16:51

Bullish to the Core

Economist

Economist
Economics

Shelly joined BMO Economics in 2020 and conducts research on the Canadian and regional economies. She also provi... (Read more)

Shelly Kaushik

Economist
Economics

Shelly joined BMO Economics in 2020 and conducts research on the Canadian and regional economies. She also provi... (Read more)

After closing off the month of April in the red, most equities rallied in the latter half of the week, helped by earnings reports (notably Apple), a less-hawkish-than-expected Fed, and some encouraging late-week data. The tech-heavy NASDAQ (+1.4% on the week) led gains among major indices, with the Dow (+1.1%) not far behind. On the other end, the TSX eked out a 0.1% loss. (Note many global markets were closed for at least one day this week, with China closed since Wednesday.)

On both sides of the U.S.-Canada border, utilities and technology stocks were big winners. The energy sector posted losses of over 1% in both cases, as oil prices slid, partially on less immediate risk perceived from geopolitical conflicts.

The big highlight of the week was the FOMC announcement on Wednesday. While there were no changes to rates (as expected), the monthly pace of quantitative tightening was reduced from $60 billion to $25 billion as of June 1^st. The press statement also noted “a lack of further progress” towards the inflation target, though Chair Powell later said further rate hikes are “unlikely” this cycle. All told, the Fed was less hawkish than it could have been (given inflation trends) and than markets feared. The FOMC seems comfortable remaining on hold for as long as it takes.

A softer-than-expected payrolls report on Friday also supported sentiment. Payrolls rose a less-than-expected 175k in April, and the jobless rate ticked up to 3.9%. Encouragingly for the Fed, wage growth slowed more than expected—the yearly change in average hourly earnings cooled to 3.9%, its slowest pace in almost three years.

On the other hand, there were still some warning signs for U.S. inflation this week highlighted by an uptick in employment costs (for Q1), home prices (February) and in the manufacturing ISM’s prices paid index (April). The latter rose the most since June 2022, thanks to the recent jump in resource prices, highlighting upside risk on (recently well behaved) goods inflation. All the more reason for the Fed to stay on hold for now—we remain comfortable with our call for the first cut in September.

Major Index Performance

North American Sector Performances

(% change over period)

Table 1 - S&P 500 Sector Performance

Source: BMO Economics, Bloomberg

Table 2 - TSX Sector Performance

Source: BMO Economics, Bloomberg

TSX Relative Sector Performance

(relative to the index, year-ago = 100; dashed line = 200-day m.a.)

S&P 500 Relative Sector Performance