Welcome to The Predictive Investor Market Brief for May 5th, 2024!
Well, we’re back to bad news = good news. Traders are betting that weaker than expected job growth and slowing wage growth will slow demand and help bring inflation down.
Our thesis over the last couple years has been that a strong labor market will provide a headwind for economic growth. And this earnings season continues to bolster that outlook, with most companies beating expectations. Unemployment is nowhere near recessionary levels, so recent market action is really a function of traders adjusting positions based on interest rates.
One administrative note: I will be traveling over the next few weeks, which may necessitate limited market updates. But we will continue to watch our positions and issue timely trade alerts based on market action.
The government wants home prices to fall
Housing supply has been so tight in recent years partly because Wall Street has been buying large quantities of homes with cash. Housing represents about a third of CPI, so one way to bring inflation down is to depress home prices.
There is some proposed legislation that would require firms to dump single family homes. (Read)
The government needs moderate levels of inflation and low interest rates to keep debt under control. While this will only impact supply in markets with high levels of corporate landlords, it might just do enough to bring inflation down to palatable levels.
Market Technical Analysis
S&P 500 (SPX)
The SPX closed above the 3/28 AVWAP for the first time since the market topped in March. Is the pullback over? There are some signs that favor the bulls, including a lower VIX and improving breadth. The MSCI emerging markets ETF also closed the week at a two-year high, indicating broader-based buying. On the bearish side, TLT remains below its 50 and 200 day moving averages. We will need to see yields continue to fall for a sustained rally in equities.
