Amy: Hi, I'm Amy Thomas, a strategist here at First Citizens Bank. Today is April 8, 2024. I'm here with our Chief Investment Officer, Brent Ciliano, and Director of Market and Economic Research, Phil Neuhart, to answer some of the questions we're hearing most often from clients. By the way, the information you're about to hear are the views and opinions of only the authors at the time of recording and should be considered for educational purposes only.
Brent, at the end of last week, we received a hotter-than-expected employment report. What are some of your takeaways from that report?
Brent: Yeah. Another strong labor market report that we got on Friday. 303,000 jobs versus an estimate of 214,000. Another blowout jobs report. The other thing is we got some really strong revisions, a net-upward movement of about 22,000 jobs from January and February. So, again, we keep continuing to see a robust labor market. Unemployment fell down to 3.8%. We still have nominal wages growing at close to 5%. Even though average hourly earnings came down a little bit, we kind of expected that from a base-effect perspective. But overall, Amy, a very, very strong and robust labor market, and it continues.
Amy: So, Phil, considering the preponderance of economic data that's coming out, including both ISM manufacturing and services now in expansionary territory, what does this mean for the Fed and their path going forward?
Phil: Well, it certainly removes the likelihood of the Fed cutting aggressively this year. In fact, futures which were once pricing the first cut in March—that moved to June,—and now it's starting to move to July. So the idea of the Fed cutting in the first part of this year is obviously out of the window now.
They're trying to balance two things, which is a really strong economy. You mentioned ISM. You mentioned the labor market a moment ago, and not to mention inflation that is being stubborn. We receive fresh CPI—Consumer Price Index—print on Wednesday. That is going to be really critical in terms of Fed policy going forward and the market's perception of it. But the market is starting to turn to fundamentals. You know, the market rallied on Friday after a hot jobs report. We often think in environments like this that good news is bad and bad news is good. But on Friday—good news was just good. That is really good to see.
Right now, futures are pricing two to three—technically about 2.5 cuts—this year. That was seven earlier this year. So the idea is that there's going to be less Fed action this year. Hopefully, the Fed's still cutting, but unlikely to be as much as the market expected. But the truth is things like the stock market are still moving higher on this news.
Brent: Yeah. And it's interesting that, you know, both the market and now the Fed are starting to come in line, right? So the SEP that came out was pricing in two to three. Like you said, we are more like six to seven. That's come back down to two and three. So it's interesting to see that the market- and Fed-speak is starting to come a little bit more in line. We've certainly said for quite a while that we thought it was going to be two to three, and time will certainly tell and that inflation point, as you mentioned, will be critical for this week.
Amy: So, Brent, given all of this economic data, how are markets reacting?
Brent: Yeah, so as you would expect with the preponderance of economic data, markets have been volatile. Equity markets saw a little bit of a sell-off, but still year to date, we're up in excess—for US equity markets, S&P 500—up more than 9%. On the fixed-income side, yields have moved higher as to what Phil said as far as expectations have fallen for cuts sooner and less more in 2024. So fixed-income markets have been volatile.
We've seen year-to-date taxable bonds and municipal bonds are off about a percent or two year to date. But, again, we're expecting a lot of volatility as expectations from monetary policy change and we continue to see economic data come in, which we think will likely cause more volatility, not less.
Phil: In terms of our view of the stock market, as you mentioned, likely to see volatility this year. We did recently raise our price target to 5,500 on the S&P 500. That's up mid-single digits, 5% to 6% depending on the day from here.
But we've had so much good news priced in. We think the market can go higher. But what we've seen over the last 4 or 5 months, expecting that straight line higher we think is unwise. So it's more likely as we see the usual bumps and bruises we see through a year. But on trend, we do think the stock market can move higher. Why is that? Gross margins are expanding. Earnings growth is persistent. And the economy does, knock on wood, appear to be on track.
So even outside of Fed policy, equities could certainly remain in a good mood—at least on trend.
Brent: Yeah, and it's a reminder that equity markets and fixed-income markets don't ever move up in a straight line, right? To your point, we've pulled forward more than 25% from October 31st of last year to today. So, again, you would expect that markets would be a little bit more sanguine as we kind of get into a rocky period of the year, at least historically. But by and large, we do, to your point, expect a positive year for equity markets.
Amy: Thanks for watching. We hope you found this information helpful. To submit a question, please visit FirstCitizens.com/Wealth.
Making Sense Outro Slide
Brent Ciliano
CFA | SVP, Chief Investment Officer
Capital Management Group | First Citizens Bank
8510 Colonnade Center Drive | Raleigh, NC 27615
brent.ciliano@firstcitizens.com | 919-716-2650
Phillip Neuhart SVP, Director of Market and Economic Research
Capital Management Group | First Citizens Bank
8510 Colonnade Center Drive | Raleigh, NC 27615
phillip.neuhart@firstcitizens.com | 919-716-2403
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