From TRowePrice:

"Late rally lifts small-caps back into positive territory for 2024

Stocks ended higher following a volatile week featuring a raft of economic and earnings data. Growth stocks outperformed value shares, which were flat overall for the week. Small-caps outpaced large-caps, helping lift the small-cap Russell 2000 Index back into slightly positive territory for the year-to-date period.

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It was the second-busiest week of first-quarter earnings reports, and a positive reception to Apple’s earnings release after the close of trading on Thursday seemed to help drive a rebound in overall sentiment. The company beat consensus revenue expectations, but investors also appeared enthused by Apple’s announcement that it would buy back USD 110 billion of its own shares, the largest such repurchase in history. Another notable mover for the week was Tesla, which surged over 15% on Monday after founder Elon Musk made a surprise appearance in China following news of the government’s tentative approval of the self-driving technology the company has under development.

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Stocks rally on signs that wage pressures are easing

The main driver of the week’s gains appeared to be Friday morning’s nonfarm payrolls report, which showed that employers added 175,000 jobs in April, less than expected and the lowest number since November. While the miss signaled a cooldown in the labor market, and thus lower inflationary pressures, investors may have been more pleased by a surprise slowdown in monthly wage increases, from 0.3% in March to 0.2% in April. The year-over-year gain fell to 3.9%, the slowest increase in almost two years. Similarly, average weekly hours worked fell back slightly, while the unemployment rate climbed slightly to 3.9%.

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The news may have been particularly welcome because it followed some upside inflation and (more distinct) downward growth surprises earlier in the week—a combination that added to recent worries over emerging “stagflation” trends. Stocks fell sharply on Tuesday after the Labor Department reported that employment costs rose 1.2% in the first quarter—or an annual rate of nearly 5%—which was above expectations and the fastest pace in a year. A separate report showed home prices rising in February at their fastest pace in eight months.

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Meanwhile, a gauge of business activity in the Chicago area fell to its lowest level since November 2022, and the Conference Board’s measure of consumer confidence declined in April to its lowest point in nearly two years. The Labor Department’s tally of March job openings, reported Wednesday, fell more than expected to 8.5 million, the lowest level in over three years. On Friday, the Institute for Supply Management reported that its gauge of services sector activity had fallen back into contraction territory for the first time since December 2022.

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Powell pushes back on stagflation worries

Investors seemed to take some encouragement the following day from Federal Reserve Chair Jerome Powell’s response to the data. In his press conference following the Fed’s two-day policy meeting, Powell pushed back against stagflation worries, stating that “I don't really understand where that's coming from” and citing current growth and inflation rates of around 3%. Powell also stressed that while policymakers were not prepared to cut rates—and rates were left steady at the meeting, as was widely expected—neither did they see the need to increase rates given the “sufficiently restrictive” current stance of monetary policy.

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The evidence of a cooling jobs market helped push the yield on the benchmark 10-year U.S. Treasury note to an intraday low of around 4.45% on Friday morning, its lowest level in nearly a month. (Bond prices and yields move in opposite directions.) A subdued primary calendar further helped returns in the tax-exempt municipal bond market.

Issuance was relatively light in the investment-grade corporate bond market, and all issues were oversubscribed. T. Rowe Price traders reported that, following a somewhat mixed start to the week, high yield bonds traded higher alongside equities in response to Powell’s relatively dovish press conference. Meanwhile, earnings reports continued to play a role in returns, while new deals that came to the market were generally met with solid demand."

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