Commentary:
Equities declined last week, with small-caps underperforming rest of the market. Two major macroeconomic indicators signaled a stronger than anticipated economic activity in the US. While non-farm payrolls came in significantly higher than consensus forecasts, manufacturing PMI unexpectedly entered the expansion territory for the first time since October 2022. As strong growth raises inflation concerns, stock markets declined with small-cap growth and large-cap growth styles being the weakest and strongest performers, respectively. Meanwhile, fixed income yields increased considerably, with longer term treasury yields rallying by a larger margin (2 and 10 year treasury yields increased by 10bps and 17bps, respectively).
In response to the economic resilience in the US, markets are pricing in less Fed rate cuts in 2024. Since the start of the year, market expectations for Fed cuts have been gradually decreasing. While in January markets were foreseeing five to six 25bps cuts, now only two to three cuts are anticipated. Lastly, the Fed is expected to deliver the first interest rate cut on either June or July meeting, with near zero chance of a rate change in May.
