A recap of the past week in short headlines.
Bullish Vibes Continue as S&P 500 and Dow Set New Records
In a week of financial fervor, the U.S. stock market continued its upward trajectory, with major indices hitting record highs. The S&P 500 surpassed its previous all-time closing high set in early 2022, while the Dow Jones Industrial Average broke its own record set just 17 days prior. This marks the 11th week of gains in the past 12 weeks, signaling robust investor confidence.
Consumer Confidence on the Rise
Contributing to the positive sentiment, the University of Michigan reported a significant jump in U.S. consumer sentiment. The index soared to 78.8, up from 69.7 in December, marking the largest two-month increase since 1991. This surge reflects growing optimism among consumers about the easing of inflation.
Earnings Season Surprises
On the earnings front, the landscape is slightly mixed. While initial expectations hinted at a marginal decline in earnings, recent reports suggest a 1.7% dip compared to the previous year, as per FactSet. This revision comes after the second batch of quarterly results were announced, providing a clearer picture of corporate performance.
Bond Yields on the Move
In the bond market, a notable shift was observed in the yield of the 10-year U.S. Treasury bond, which jumped to its highest level in over five weeks. This increase, closing around 4.14%, was influenced by a decrease in weekly unemployment claims and changing expectations around interest-rate cuts.
Real Estate Market Feels the Pressure
2023 was a challenging year for the U.S. residential real estate market. High interest rates contributed to a significant decline in home sales, with the National Association of Realtors reporting the lowest full-year level since 1995. Total sales dropped to 4.09 million, a stark 19% decrease from the previous year.
Mixed Performance Across Market Segments
In early 2024, certain segments of the U.S. stock market, particularly small-cap and large-cap value stocks, have shown underperformance. Small-cap stocks are down about 4% year to date, while large-cap value stocks have seen a nearly 1% decline.
China’s Economic Growth
Internationally, China’s economy expanded at a 5.2% annual rate in the fourth quarter, slightly below expectations but an improvement from the previous quarter. For the full year of 2023, China maintained a growth rate of 5.2%, a significant jump from the 3.0% increase in 2022.
Looking Ahead to U.S. GDP Data
The upcoming U.S. GDP data is eagerly anticipated. The initial estimate for the fourth quarter is expected to indicate solid growth, albeit at a slower pace than the strong 4.9% annual rate seen in the third quarter. The U.S. Federal Reserve’s estimate points to a growth rate of around 2.4% for the quarter.
Key Economic Indicators in Focus
Looking ahead, Edward Jones underscores three critical datapoints in late January that could shape market dynamics:
Fourth-Quarter U.S. GDP Growth (January 25): Initial estimates suggest a slowdown in economic growth, with the Atlanta Fed’s GDP-Now tracker indicating a possible 2.4% growth for Q4. Despite rising interest rates and inflation, consumer resilience has kept economic growth above trend. Edward Jones anticipates a gradual slowdown in GDP growth but no recession in the near term.
PCE and Core PCE Inflation (January 26): Inflation remains a central focus. While CPI inflation has been higher than expected, PPI inflation has dipped. The upcoming PCE inflation figures, a key metric for the Fed, are expected to show a slight decrease in core inflation, moving closer to the Fed’s 2.4% target for 2024.
Fed Meeting and Interest-Rate Decision (January 31): The Federal Reserve’s first interest-rate decision of the year is highly anticipated. Despite market expectations of rate cuts in 2024, Edward Jones believes the Fed might delay cuts until mid-year, especially with core inflation rates still above the 2.0% target.
