Weekly Market Commentary January 8th to January 12th 2024

Inflation data was the headline in an otherwise light week of economic data. For the month of December, the Consumer Price Index (CPI) increased 0.3% month-over-month and 3.4% year-over-year, both above expectations. Core CPI, which strips out food and energy, increased 0.3% month-over-month and 3.9% year-over-year, the first reading under 4% in two years. In contrast to the hot CPI data, the Producer Price Index (PPI) came in cooler than expected. Month-over-month PPI decreased 0.1% while year-over-year increased only 1%. Overall, equity markets seemed to shrug off the inflation data. However, treasury yields fell as investors increased their bets on how aggressive the Federal Reserve will be at cutting interest rates; currently an 82% chance of a cut by March.

Another notable data point in the week was the surge in consumer credit in November, as the start of the holiday season saw a $23.8 billion increase in consumer debt. Revolving credit, such as credit cards, increased $19.1 billion while non-revolving credit, such as auto and student loans, increased $4.6 billion. The consumer has been strong amidst a resilient labor market; however, signs of stress are beginning to emerge as the rate of credit card debt becoming newly delinquent rose in the third quarter.

Initial jobless claims remained in line with the recent average last week, coming in at 202,000 new claims. Mortgage applications increased sharply by 9.9% and the 30-year fixed mortgage rate ticked up slightly to 6.8%. Historically, housing purchases tend to be more volatile around the holidays, but the recent surge could also be due to the notion that borrowing costs have peaked.

After starting the year with their first down week since October, the equity markets resumed their forward march. The S&P 500 increased 1.8% and closed at 4,784, the Dow Jones Industrials increased 0.3% and closed at 37,593, while the Nasdaq Composite increased 3.1% to 14,973. US Treasury yields fell on the week with the 10-Year Treasury declining 11bps to 3.94% and the 2-Year Treasury declining 23bps to 4.15%.

Next week investors will be focused on Retail Sales on Wednesday and housing data reports on Thursday.