March 1, 2024

Weekly Market Commentary February 26th to March 1st 2024

The big story of the week was whether the Personal Consumption Expenditures (PCE) Index would follow the CPI and PPI higher for the month of January.  Cementing the Fed’s recent “higher for longer” rate rhetoric, it did just that.  The month-over-month PCE Deflator came in at an (as-expected) 0.3%, which was slightly higher than December’s 0.2%.  The year-over-year figure came in at 2.8% when last month was 2.9%.  This drop was due to last January’s much higher figure falling out of the index.  When stripping commodities out of the headline figure, both the MoM and YoY Core PCE followed suit.  The monthly came in higher yet the yearly was slightly lower.  January has been a hiccup in the recent downward trend of inflation and has caused a new round of Fed indications for delaying rate cuts.  Personal Income came in hotter than expected at 1.0% while Personal Spending dropped from the previous month from 0.7% to 0.2%.  The Fed will continue to look for signs that the economy is truly slowing, and consumer behavior is often under the microscope as it was the main driver pushing inflation to sky high levels in the recent past.

Also released this week, we saw New Home Sales increase 1.5% for January after revisions were made to the December figures, while Pending Home Sales dropped 4.9%.  Real Estate transactions can often be volatile in the winter months but we’re still in a low-inventory, high-rate environment that’s smothering this sector.  Relief is likely only to come when mortgage rates fall.

In the manufacturing sector, Durable Goods Orders fell -6.1% when consensus called for -4.7%.  This can be attributed to the turmoil at Boeing (they received no new orders for the month of January).  Stripping the transportation sector from this figure still gave us -0.3% when +0.2% was expected, but it’s far more reasonable and in line with recent results.  The Institute of Supply Management (ISM) Manufacturing Index for February came in well under expectations at 47.8 (50 or higher denotes expansion).  This index has been contracting for 16 months in a row and may be the segment most affected by the Fed’s aggressive rate increases since early 2022.

Lastly this week, 4Q-2023 GDP was revised to 3.2%, dropping 0.1%.  This is still a strong growth rate that is likely to be unsustainable in the first half of 2024.  This minor adjustment leaves the yearly GDP for 2023 at a robust 3.1%.  The Atlanta Fed is predicting 1Q-2024 GDP to be at 2.1%. 

In the markets this week, equities were mixed with the S&P 500 and NASDAQ Indices finishing at all-time highs, while the Dow Jones Industrials fell.  The S&P 500 closed at 5,137; the NASDAQ at 16,275; and the DJIA at 39,087.  In the fixed income market, treasuries rallied across the curve.  The 2-Year U.S. Treasury yield closed at 4.55%; the 10-Year at 4.19%, and 30-Year finished the week at 4.33%.

Key economic releases next week include the February Employment Report, ISM Services, and Factory orders.  We’ll also hear from the presidents of the San Francisco, Cleveland, and New York Feds along with Chair Powell testifying before Congress.  Any other message besides “higher for longer” will come as a surprise.

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