Week in Review: February 16, 2024
February 20, 2024
Recap & Commentary
Markets ended the week mixed, with large caps (S&P 500) pulling back slightly while other portions of the equity market ended higher. Inflation data and corporate earning reports were the primary drivers for the week.
Following the Federal Reserve’s January FOMC meeting, Fed Chair Jay Powell stated that the committee didn’t need to see “better” inflation data moving forward, just a continuation of the “good” inflation data seen over the prior six months. Since the meeting, other committee members voiced concerns about cutting rates prematurely. Unfortunately for investors, January’s stronger-than-expected inflation reports raised doubts about how quickly inflation is receding and thus, how quickly the Fed will move to cut rates.
Entering the year, markets anticipated as many as six rates cuts, with the first occurring at the Fed’s March meeting. Since then, generally positive economic data resulted in the markets lowering their expectations for rates cuts to 4-5, with the first one not occurring until May. Following last week’s inflation data, market expectations ended the week looking for four rate cuts with the first occurring at the Fed’s June meeting.
On the heels of the inflation data, yields jumped with the 10-Year Treasury yield gaining 0.11%, to end the week at 4.28%, while the 2-Year Treasury, rose 0.15% to end at 2.64%.
Through Friday, 79% of S&P 500 companies had reported earnings. Of those, 75% have beaten their earnings estimate. According to industry group FactSet, 4Q23 consolidated earnings growth is expected to be 3.2%.
Economic Commentary
Economic data was generally worse than anticipated throughout last week’s busy economic calendar. The consumer price index (CPI) rose 0.3% in January, ahead of expectations for a 0.2% increase. Since last year, headline CPI is up 3.1%. In January, food prices increased 0.4%, while energy prices declined 0.9%. Core CPI, which excludes these items, increased 0.4% from December, and 3.9% from a year ago. Rental inflation rose by 0.5% accounting for most of the CPI increase in January. Inflation in the services sector fared no better. Services excluding housing rose by 0.8% in January, the largest increase since April 2022, due mostly to rising hotel and airfare prices.
Producer prices (PPI) also increased by more than expected. Despite falling food and energy prices, January PPI increased 0.3%, vs. an expected 0.1% increase. Producer prices have increased 0.9% since last year. Final demand goods prices declined 0.2%, while final demand services prices increased 0.6% during the month.
Retail sales surprised to the downside in January, falling 0.8% vs. expectations for a 0.2% decline. Core retail sales, excluding autos and gasoline looked worse, down 0.5% vs. expectations for a 0.3% increase. The drop in sales was broad based with 9 out of 13 categories declining in January, however, unusually frigid weather may have been to blame. One of the only bright spots in the report was sales at restaurants & bars which increased 0.7%, indicating that spending in the services sector held up well to start the year.
Of Note
Japan and the UK entered recession at the end of last year, as both posted negative GDP growth for a second consecutive quarter in 4Q23. Both economies were impacted by weak consumer demand.
Market Indices (As of 02/16/2024)
- Existing Home Sales
- Manufacturing PMI
- Services PMI
- Weekly Jobless Claims
