S&P 500 Surges as Weak PMI Data Boosts Hopes for Dovish Fed

The S&P 500 surged on Tuesday as weaker-than-expected US Manufacturing and Services PMI data for April boosted hopes for a more dovish Federal Reserve. The S&P Global Flash US Manufacturing PMI fell to 49.9 in April 2024, the lowest in four months, indicating broadly unchanged business conditions. The Services PMI also edged lower to 50.9, signaling a softer pace of expansion.

Investors viewed the PMI data as a sign that the Fed may take a more accommodative stance on interest rates. The Dow Jones Industrial Average jumped over 300 points, with the S&P 500 and Nasdaq Composite also posting strong gains. The rally was fueled by a pullback in bond yields, with the 2-year Treasury yield down to 4.94% and the 10-year yield down to 4.593%.

Meanwhile, March New Home Sales exceeded expectations, rising 8.8% month-over-month to a seasonally adjusted annual rate of 693,000. The rise in new home sales was driven by increases across all regions, with the Northeast seeing the largest gain of 27.8%. The median sales price of new houses sold in March 2024 was $430,700, up 6.0% from February, while the average sales price was $524,800, up 7.4% from the previous month.

Why this matters: The weaker-than-expected PMI data and strong new home sales figures provide conflicting signals about the state of the US economy. While the PMI data suggests a slowdown in business activity, the housing market remains resilient. The Fed will closely monitor these economic indicators as it determines the path of monetary policy in the coming months.

The seasonally adjusted estimate of new houses for sale at the end of March was 477,000, representing a supply of 8.3 months at the current sales rate. Experts attribute the pickup in new home sales to homebuilders offering incentives like reduced mortgages and discounts on upgrades, as well as a broader mix of smaller homes to make them more affordable for buyers. Despite the moderation in PMI data, the readings remained above 50, indicating ongoing expansion in the US private sector.

Key Takeaways

• S&P 500 surged on weaker-than-expected US PMI data, boosting hopes for dovish Fed
• March new home sales rose 8.8% to 693,000, driven by increases across all regions
• Median sales price of new houses up 6% to $430,700, average price up 7.4% to $524,800
• PMI data suggests slowdown, but housing market remains resilient, creating mixed signals
• Fed to closely monitor economic indicators to determine future monetary policy