Investment Update April 2, 2024

Last Week on Wall Street

On a week shortened by the Good Friday holiday, economic data included the final U.S. GDP growth number for the 4th quarter being revised slightly higher. Recent monthly data included gains in durable goods orders, and mixed house price and home sales data, as well as mixed results in consumer confidence.

Equities fared positively around the world last week, with some economic improvements abroad and continued hopes for rate cuts mid-year. Bonds fared decently with a small decline in yields. Commodities saw gains, primarily in crude oil and gold.

U.S. stocks continued their run of positive weeks. Breadth has improved, with outperformance from the equal-weight version of the index and small caps outperforming mega-caps. Value and more defensive parts of the market led, with the largest gains spread between utilities, energy, financials, and healthcare—all near or over 2%. Technology was one of only two sectors with negative returns for the week, down over a percent. Real estate saw gains of over 2% for the week as well.

There appeared to be some negative impact early in the week by Tuesday’s collapse of the Francis Scott Key Bridge in Baltimore, due to the potential negative effects on one of the busiest U.S. ports (particularly for autos), and secondary potential upward impacts on near-term inflation.

Foreign stocks gained as well, with Europe, U.K., and emerging markets all outperforming the U.S., while Japan lagged. It was noted that the U.K. officially moved into recession in Q4, upon a growth contraction of -0.3%. Conditions elsewhere, though, such as in Germany and Spain, have improved a bit. Sentiment has also ticked higher—in fact the European Commissions’ confidence gauge is now the highest it’s been in two years. Emerging markets saw gains across the board.

Bonds saw minor gains as interest rates ticked down just slightly across the curve, with U.S. Treasuries and corporate credit providing similar returns. Foreign bonds were held back a bit by a stronger dollar.

Commodities gained almost across the board last week, led by precious metals and energy, while industrial metals were little changed. Crude oil rose 3% last week to $83/barrel. Ukraine has been intensifying its drone strikes on Russian refinery facilities, which reduces crude oil demand a bit, a downward influence, but has a more meaningful impact on negatively impacting supply of distillates (jet fuel, diesel, etc.), driving those prices potentially higher. Weaker U.S. drilling activity has also raised inventory concerns. A little-followed area of the commodities world (being only 0.3% of the S&P GSCI index), cocoa, has seen a spot price rise of over 130% year-to-date due to extremely weak harvests and crop disease in key African growing nations Ghana and Ivory Coast, which has led to shortages. Ironically, reports of illegal mining (in response to now higher prices for gold) have negatively impacted key growing areas.

Fact of the Week

The IRS cracked down on one of the largest fraud schemes in U.S. history in 2023, sentencing five individuals to prison for ranges between six and 40 years. From 2010 to 2018, the fraudsters engaged in money laundering, mail fraud, and claimed over $1 billion in erroneous renewable energy fuel tax credits. In addition to jail time, the IRS imposed over $1.5 billion in restitution (source: Internal Revenue Service).