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Monthly Economic and Investment Outlook

April 2024 Economic and Investment Outlook

United States

stock market bull statue
  • The Bureau of Labor Statistics (BLS) reported that 303k nonfarm payroll jobs were created in March, well above the consensus of 200k. Job creation over the past three months averaged 276k per month, which is above the 12-month average of 231k. The job market is robust. Job gains occurred in healthcare, government, and construction.
  • The unemployment rate dropped to 3.8% from 3.9% the previous month. Average hourly earnings rose 4.1% y/y (compared to 4.3% in February) and was the lowest increase since June 2021.

    Nonfarm Payroll Growth 
     

  • The ISM services survey surprised to the downside again in March, falling from 52.6% to 51.4%. Consensus expectation was for a modest increase. Employment levels, orders backlogs, and supplier deliveries all detracted from the survey’s reading.
  • February’s headline Personal Consumption Expenditure (PCE) price index rose as expected to 2.5% y/y, compared to 2.4% in January. Core PCE, excluding volatile food and energy prices, rose 2.8% y/y, down from 2.9% the previous month. However, the latest PCE index signals that inflation remains above the Fed’s target of 2%.


    Change in PCE
       

  • According to the latest Consumer Price Index (CPI) report, the overall inflation rate in March of 3.5% was higher than the prior month’s 3.2%, and hotter than expected. Core CPI, ex-food, and energy, remained the same at 3.8% y/y.
  • The larger-than anticipated increase in the U.S. ISM Manufacturing PMI to 50.3% in March from 47.8% the previous month indicates the PMI has broken above its neutral threshold of 50% for the 1st time since September 2022. The improvement was primarily driven by an increase in production levels and new orders. Low customer inventory levels should support continued improvement in production levels.

Global

  • According to the World Economic Outlook from the International Monetary Fund (IMF), global economic growth is expected to pick up slightly in 2025. The world economy is expected to expand 3.1% in 2024 and 3.2% in 2025. These rates are below the long-term historical growth rate of 3.8%, due to the impact of inflation and higher interest rates. The growth improvement is largely attributable to emerging markets, led by India (6.5%) and China (4.1%).
  • India’s growth should be driven by population growth while growth in China should be driven by productivity growth.
  • With the recent Bank of Japan policy shift, raising rates for the first time in more than 17 years, the global debt market has reached a post-pandemic low for negative yielding debt. At one point during the depths of the economic lockdowns, the aggregate amount of negative yielding debt approached $18 trillion. That figure has been dramatically reduced to roughly $300 billion. It appears the global debt market is finally normalizing.

    Bloomberg Global Agg
          

  • The European Commission data showed that confidence in the eurozone economy ticked up slightly in March to 96.3 from 95.5 in February. The indicator is moving closer to its long-term average of 100. According to Eurostat, the Eurozone’s annual rate of inflation fell for the 3rd straight month in March.
  • According to Eurostat, the Eurozone’s annual rate of inflation fell for the 3rd straight month in March. Consumer prices were 2.4% higher than a year earlier. Core inflation came in at 2.9%, the lowest level in more than two years. However, inflation pressures have yet to ease in the service sector, where prices paid for services rose 4.0% over the past 12 months. The unemployment rate remained at a record low of 6.5% in February.
  • The final composite PMI readings in the Eurozone suggest that activity is expanding for the 1st time since May 2023. The composite index came in at 50.3% in March, up from 49.2% in February.

    Eurozone Composite PMIs
    Source: Oxford Economics/S&P Global
       

  • According to China’s National Bureau of Statistics, China’s manufacturing sector returned to expansion territory as economic activity edged up to 50.8% in March, from February’s 49.1%. Both production and employment contributed to this improvement.

Fixed Income

  • After taking no action at the March FOMC meeting, the Fed continued to forecast three 0.25% cuts in the federal funds rate this year, the same projection from the December 2023 meeting. The fed-funds target range remains 5.25%-5.50%.
  • However, the median forecast for real GDP growth was raised from 1.4% to 2.1%, and the core PCE inflation rate was increased from 2.4% to 2.6%.
  • The reason why the Fed pivots lower will be critical for U.S. and global equity markets. If the Fed cuts rates because inflation is coming down, rather than being forced into a cut because of higher unemployment or an impending financial crisis precipitating a recession, equity markets could continue to move higher from these levels.
  • The yield on the 10-year Treasury note has been on somewhat of a roller coaster ride over the past year. In March 2023, the yield on the note was 3.46%, and then rose above 5% in October 2023. It finished 2023 basically where it started the year at 3.86%, but down rather significantly from its October high. Recently, yields have been moving higher as inflation remains stickier and employment strong.

    U.S. 10 Year Treasury Note

    US 10 Year Treasury Note
     Source: MarketWatch     

     

  • According to Strategas Research, it is uncommon for a yield curve inversion to not end in a recession, but not impossible. When using the 2-year to 10-year yield curve, there is only one instance where the curve inverted and did not end in a recession. That was 1998. However, the data for the 2/10 yield curve only goes back to 1976.
  • The 1-year to 10-year yield curve has more history. 1966 stands out as period in which the yield curve was deeply inverted, like it is today, and a recession was avoided. Admittedly, 1967 and 1968 were solid years for the equity markets.

    Spread Between 1 Year and 10 Year 
     Strategas Securities, LLC - Investment Strategy

  • Corporations are experiencing record profits and cash flow. After-tax corporate profits rose to a record $2.8 trillion during Q4 2023. Corporations paid a record $1.9 trillion in dividends and had $942 billion in undistributed profits, which if combined with a record $2.5 trillion in tax-reported depreciation, generated a record $3.5 trillion in corporate free cash flow. Corporate America is in relatively good shape.

Tactical Fixed Income Allocation

  • Neutral duration to the fixed income strategy’s respective benchmark as fixed income markets digest economic data and attempt to anticipate the Fed’s next interest rate move.
  • Slight overweight to short-term investment grade corporates versus the respective benchmark to capture additional income with minimal incremental risk.

Equity Market

  • The S&P 500 gained over 10% in Q1, its best start of the year since 2019, and the 11th best start since 1950. The index registered 22 all-time closing highs, the most in Q1 since 1998. More than one-half of the stocks in the S&P 500 reached 52-week highs.
  • According to Dow Jones Market Data, since 1950, when the S&P 500 advances 8% or more Q1, it finishes the year higher 94% of the time, with an average gain of 9.7% over the next three quarters.
  • In addition, since 1950, the S&P 500 has risen in a presidential-election year 83% of the time, with an average gain of 7.3%.
  • According to Strategas, the longer the Fed pause in rate hikes, the better are the returns for the equity markets. In periods where the pause is greater than 100 days, the market is up on average 13%.

          
    Length of Fed Pauses
    Strategas Securities, LLC - Investment Strategy
         

  • Corporations are experiencing record profits and cash flow. After-tax corporate profits rose to a record $2.8 trillion during Q4 2023. Corporations paid a record $1.9 trillion in dividends and had $942 billion in undistributed profits, which if combined with a record $2.5 trillion in tax-reported depreciation, generated a record $3.5 trillion in corporate free cash flow. Corporate America is in relatively good shape.



    Profits From Current Production

Tactical Equity Allocation

  • Overweight to U.S. Large Cap stocks with an emphasis on equities with quality, defensive, and strong cash flow characteristics.
  • Underweight to International Developed with no exposure to Emerging Markets. Although valuations remain attractive relative to U.S. equities, these asset classes may be pressured by a stronger U.S. Dollar and recessionary fears.
  • Slight exposure to gold, to serve as a hedge, in a geopolitically tense global environment.
Notices & Disclosures
Past performance is no guarantee of future results. Products and services offered through F.N.B. Investment Advisors, Inc. are not FDIC insured; and are not insured by any Federal Government Agency, are not deposits or obligations of or guaranteed by First National Bank of Pennsylvania or its affiliates and may go down in value. The material has been extracted from various sources that F.N.B. Investment Advisors, Inc. believes reliable, but we cannot guarantee the accuracy or integrity of the material. This material is for your private information, and we are not soliciting any action based upon it. Any projections, market outlooks or estimates contained herein are forward-looking statements and are based upon certain assumptions. Other events that were not considered may occur and may significantly affect the returns or performance of these investments. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product or any non-investment related content, made reference to directly or indirectly herein will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. You should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with their investment advisor. You can review your registered investment advisors or the investment advisory firm at the SEC's Investment Adviser Public Disclosure page - http://www.adviserinfo.sec.gov/IAPD/Default.aspxRedirect icon.

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