Economic and Market Snapshot: Week Ending April 5, 2024

TL;DR: The first quarter of 2024 has surprised investors with its resilience. Despite initial predictions of slowing growth and easing inflation, the U.S. economy has shown unexpected vigor. This robust performance, along with escalating geopolitical tensions and rising oil prices, has led to adjustments in expectations regarding Federal Reserve rate cuts. Meanwhile, the job market continues to expand significantly, challenging predictions of a cooling labor market. These developments have had mixed impacts on stock markets and have driven mortgage rates to their highest levels since last fall.

Key Economic Indicators:

• Economic Growth: The U.S. economy grew at a 3.4% annual pace in Q4 2023, revised up from 3.2%, demonstrating more robust growth than anticipated.
• Inflation and PCE Index: Core PCE inflation remained steady at 2.8% year-over-year, matching expectations and indicating persistent inflationary pressures.

Labor Market:

• Employment Growth: March saw the addition of 303,000 new jobs, surpassing the expected 200,000, with the unemployment rate dipping to 3.8%. This marks 26 consecutive months of unemployment remaining below 4%.
• Wage Growth: Average hourly wages increased by 4.1% year-over-year in March, suggesting a slight decrease in wage pressure on inflation.

Stock Markets:

• Dow Jones: Ended the week at 38,904.04, down 2.3%, but up 3.2% year-to-date.
• S&P 500: Closed at 5,204.34, a 1% decrease for the week, but up 9.1% year-to-date.
• Nasdaq: Finished at 16,248.52, down 0.8% for the week, with an 8.2% gain year-to-date.

Bond Yields and Mortgage Rates:

• Treasury Yields: The 10-year yield rose to 4.39%, and the 30-year to 4.54%, reflecting increased bond yields.
• Mortgage Rates: The 30-year fixed mortgage rate increased slightly to 6.82%, while the 15-year fixed rate saw a minor decrease to 6.06%.

Real Estate and Infrastructure:

• The U.S. real estate market faces challenges due to high mortgage rates and significant adjustments in major U.S. cities’ property values. Structural changes and market dynamics suggest a cautious outlook for recovery and repurposing of buildings.
• Infrastructure projects, particularly union-related, have contributed to job gains, though there is a noted discrepancy in minority job gains and a shortage in skilled labor.

Geopolitical Tensions and Oil Prices:

• Rising geopolitical tensions, particularly in the Middle East, have pushed oil prices to their highest levels in over six months, contributing to inflationary pressures and impacting global economic forecasts.

Analysis:

The unexpected strength of the U.S. economy, coupled with persistent inflation and a robust job market, has led to a reassessment of Federal Reserve rate cut expectations. While the stock market reflects investor uncertainty, the increase in bond yields and mortgage rates indicates concerns over prolonged inflation and economic overheating. These factors, along with rising oil prices and geopolitical risks, underscore the complexities facing the economy and the real estate market as we move further into 2024.