January 26, 2024

Weekly Market Commentary January 22nd to January 26th 2024

It was another busy week of economic data releases and more evidence supporting a successful “soft landing” perpetrated by the Federal Reserve Bank. On Wednesday, we saw the release of the S&P Global Purchasing Managers’ Indices (PMI) for manufacturing and services. Both were winners. Manufacturing came in at 50.3, implying expansion for the first time since October of 2022. Services blew through estimates (51.0) and came in at 52.9. Both were strong signs of not just a stable economy, but a growing one. Speaking of growth, the first cut of Q4 Gross Domestic Product (GDP) came in at 3.3% when 2.0% was expected. This may have been the biggest surprise of the week and should likely cause the Fed to reevaluate its rate cut projections for 2024.

Durable Goods came in flat for December when consensus called for +1.0%. This wasn’t surprising as this number has been fairly erratic recently, coming in at 4.0, -5.1, and 5.4% for the past three months. Things tend to smooth out when the volatile transportation sector is removed as Durables ex-Transportation came in at +0.6% when +0.2% was expected.

There was more positive news on the inflation front. The Core Personal Consumption Expenditures (PCE) Index came in as-expected at 0.2% for the month, but the year-over-year figure dropped to 2.9% which is the first time it’s been below 3% since March of 2021. This is the key inflation figure followed by the Fed. Personal Income came in as expected at +0.3% while Personal Consumption beat the estimated +0.4% by coming in at +0.7%; proving that consumers are doing what they do best when they are confident…they are spending!

In the real estate sector for December, New Home Sales came in at 664,000 or +12.5% month over month; and Pending Home Sales was up +8.3% over the same period. Lastly, Weekly Initial Jobless Claims came in at 214,000, which is slightly higher than expected, but well within the recent range and likely bouncing off last week’s 189,000 recent low. All in all, it was a very promising week for the economy leaving many economists convinced the Fed is on its way to pulling off the difficult “smooth landing” and likely ratcheting up the discussions of just how long it will be until rate cuts actually happen. The Fed will be inclined to keep rates “higher for longer” as positive economic news keeps rolling in.

In the financial markets, all three major stock market indices finished another strong week with the S&P 500 closing up 1.1% at 4,891; the Dow Jones Industrials up 0.6% at 38,109; and the NASDAQ finishing at 15,455, or up 0.9%. In the bond market, the shorter end of the curve rallied with the 2-Year U.S. Treasury yield hitting 4.36%; while the 10-Year and 30-Year closed at 4.14% and 4.38% respectively.

Key economic releases next week include the January employment figures and the report following the Federal Open Market Committee’s January meeting.

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