Weekly Market Recap: Earnings Boost U.S. Equities, Stagflation Fears Loom, and Eyes on Economic Data Ahead

Market Overview:

U.S. Equities saw a positive week, driven by strong earnings results, particularly from tech giants like Alphabet and Tesla. The S&P 500 surged almost 3%, buoyed by Alphabet's impressive performance and Tesla's ambitious plans for a low-cost vehicle. Microsoft also contributed positively, offsetting the disappointment from Meta. NVIDIA and Super Micro Computer thrived amidst the technology sector's rally, though materials and healthcare lagged behind. 

International Equities struggled to keep pace, with only China managing to match the performance of U.S. tech companies. Japan's markets rose but underperformed due to the Bank of Japan's unchanged monetary policy. Despite geopolitical concerns, markets found attraction in China's cheap valuations. 

In Fixed Income, the Bloomberg Aggregate Bond Index remained relatively unchanged, though 2-Year Treasury yields reached a new high for the year at 5.02%. With inflationary pressures persisting, nominal Treasury bonds faced pressure as rate cut expectations diminished. TIPS emerged as a potential hedge against inflation, with breakevens still contained.

The broader Commodities complex experienced modest losses, with energy strength offsetting metal market declines. Gold snapped a six-week winning streak, while copper shone as it rose over 1%. Agricultural markets saw wheat rally over 10% due to supply concerns stemming from droughts.

Federal Reserve Insights and Economic Roundup:

The specter of stagflation loomed over investors as real final sales decelerated for the second consecutive month. Annual core inflation held steady in March, but with services and goods inflation on divergent paths, the timing of rate cuts may be pushed further out. Despite real disposable personal income rising in March, the savings rate fell to its lowest since late 2022, potentially indicating consumer strain amidst high prices. If the economy slows while inflation persists, the stagflation debate could resurface, introducing market volatility.

The Week Ahead:

Key economic data for the upcoming week includes the Dallas Fed Manufacturing report on Monday, followed by significant releases on Tuesday, including the Employment Cost Index, FHFA House Price Index, Chicago PMI, Consumer Confidence, and Dallas Fed Services Activity. Wednesday brings data on mortgage applications, ADP employment, manufacturing PMI, construction spending, JOLTS, and the ISM, alongside the FOMC meeting. Thursday features Challenger Job Cuts, trade balance, initial claims, factory orders, and durable goods orders. Finally, Friday wraps up the week with the highly anticipated Nonfarm Payrolls report, along with the Unemployment Rate, service PMI, and ISM Services data.