Weekly Market Commentary January 29th to February 2nd 2024
The Federal Open Market Committee voted unanimously to keep interest rates unchanged, leaving the Fed Funds target range at 5.25%-5.50%. Fed officials signaled being open to cutting interest rates, however, they are in no rush to do so, stating “it will not be appropriate to reduce the target range until we have gained greater confidence that inflation is moving sustainably toward 2%.” Following stronger-than-expected economic growth in the fourth quarter, the committee is projecting three rate cuts in 2024, in contrast to the five cuts the market is predicting.
Supporting the notion of fewer-than-expected rate cuts, employment data released on Friday came in much hotter than expected. Non-farm payrolls increased 353k versus the forecast of 185k and the prior month reading was upwardly revised to 333k. The unemployment rate stayed at 3.7% when it was expected to tick higher, and hourly earnings increased 0.6% over the month and 4.5% over the year, both hotter than expected. The recent data suggests a reacceleration in the job market with very little signs of a labor market slowdown.
Available jobs in December exceeded all expectations, rising above 9 million openings. The data show fewer Americans quitting their jobs, possibly indicating a loss of confidence in their ability to find better opportunities.
In addition to jobs data, we also received positive reports surrounding the state of manufacturing in the US. Manufacturing is showing signs of improvement as several manufacturing gauges reached levels not seen since 2022. S&P Global US Manufacturing PMI remained in expansionary territory at 50.7 while ISM manufacturing exceeded expectations at 49.1 on the back of a major surge in new orders. The recent data suggests manufacturing is starting to stabilize after declining for more than a year.
We had another positive week in the equity markets while yields were mixed. The S&P 500 rallied 1.4% to new highs, closing at 4,959. The Dow Jones advanced 1.4% to 38,654, and the Nasdaq was higher by 1.3% to 15,653. The 10-Year Treasury yield fell 11bps to 4.03% while the 2-year treasury rose 1bp to 4.37%.
Next week we will be focused on services data in an otherwise light economic data week.