In The Know – May 10, 2024

At Financial Issues, we help you to stay in the know about the financial issues of the day. We keep you abreast of what’s happening in the economy, in the markets, and help you understand how that impacts your own personal financial issues. Here are my takeaways from the week ending May 10.

So far, it’s been a pretty quiet week as far as economic data goes. We got a lot of labor data last week. We’re going to get a lot of inflation data next week. The weekly unemployment number came out yesterday and the US Department of Labor reported that the number of people claiming unemployment benefits in the US surged by 22,000 to 231,000 for the week ending May 4th, 2024. Now that is the highest weekly number that we’ve seen since August 2023, and it’s sharply above what was expected at 210.

So for the past four consecutive weeks, the unemployment numbers that have been reported were upside surprises. And since February 2nd, initial jobless claims have remained in an extremely tight range between 208 and 213,000 except for one of the reports around President’s Day. We’ve seen the weekly unemployment numbers but come in between 208 and 213 this week, 231. So there was no real holiday or seasonal adjustment change that were noted to explain away the differences. Maybe, except for one. This confirms what I’ve been saying about a loosening labor market, the four-week moving average for initial claims which takes away the week to week volatility because we could see this one week as an anomaly. 

New York was one of the regions that posted the sharpest increases in the unemployment for that week, and they have something a little bit different from around the country. They allow their public school workers to apply for benefits during winter and spring breaks. So New York could be a reason for the increase. 

Now the four-week moving average for initial claims which removes that week to week volatility jumped also by, 4750 to 215,000. To put all this in perspective, 20 years before COVID the weekly initial applications had averaged about 345,000. So we’re still pretty well below that. And continuing claims averaged roughly 2.9 million. So we’re still below that. And you could say we still have a fairly strong labor market, but we are seeing cracks in the labor market. 

In response to those unemployment claims, the two-year treasury fell by three basis points, as did the ten-year yield. And what this indicates is that we’re seeing an increase in demand for the  safety of treasuries, which is, in my opinion, becoming less safe. Increased demand for these treasuries means that the prices increase, and bond prices and yields have an inverse relationship. So when bond prices rise, the yield goes down. 

Good news for the 30-year mortgage. It ticked down by 13 basis points from the previous week, but it’s still over 7%. 

Earnings season has continued, albeit with a slight delay, with approximately 80% of S&P 500 companies having already reported their earnings. As we wind down earnings season, a minority of companies are expected to report through the end of the month. Initial results show that 77% of S&P companies have reported positive earnings surprises, while 61% have reported positive revenue surprises. This marks a significant difference between earnings and revenues, with revenue representing the top line and earnings the bottom line. The blended year-over-year growth rate for the first quarter of 2024 is projected to be around 5%, surpassing the expected 3.4% growth and marking the highest growth rate since the second quarter of 2022.

So, how is the market valuing all of this? While the market is indeed in a somewhat overvalued state, indicated by the twelve-month forward PE ratio for the S&P 500 just below 20, compared to the five-year average slightly above 19, and the ten-year average at 17.8. In essence, the market is factoring in a lot of positive news, including robust earnings and expectations surrounding AI advancements. As I mentioned at the beginning of earnings season, extraordinary forward guidance is necessary to sustain current valuations, as the bright future is already priced in. Supporting this notion, companies that exceeded earnings estimates saw modest increases in stock prices, below historical averages, while those that missed earnings experienced more severe declines, signaling a departure from the norm. Remember, I always say long term.  What makes the stock prices in the stock markets go up is earnings. Companies that missed earnings have seen their stocks punished more than usual.

Speaking of earnings season, Planet Fitness, which is not on our list of biblically responsible stocks, falls after reeling in full year guidance. The woke national fitness firm lowered its outlook for the full year, citing several headwinds. The issue stemmed from an incident that happened with their transgender policy. This is why Financial Issues exists to keep you educated about companies that are involved in things that dishonor God. 

What’s coming next week? Well, consumer sentiment, inflation reports and retail sales numbers will be the discussion next week. 

So now that you’re in the know about the recent and upcoming financial issues, we hope that you will learn more about how we help you integrate those issues into your own stewardship. Find out more about how we can help you defund darkness with our biblically responsible investment strategy at financialissues.org/join.