Week in Review: February 2, 2024

February 5, 2024

Recap & Commentary

Market ended the week higher, propelled by the strong January employment report, as well as a re-reading of Fed Chair Jay Powell’s comments following the Fed’s January FOMC meeting.​

As expected, the Federal Reserve left rates unchanged at its January meeting.  Given that assumption, markets were more focused on Powell’s press conference following the meeting and whether he might provide any indication as to when the first rate cut would occur. With respect to timing, Powell noted that the past six months of inflation data had been “very good,” but that he would like to see more good data to be confident that inflation is moving sustainably down to the Fed’s 2% target. As a result, Powell didn’t think the FOMC Committee would “reach that level of confidence” by the March meeting. On the heels of that comment, the S&P 500 shed 1.6%, its largest daily decline since September.​

Markets rebounded the very next day, however, perhaps after investors had a chance to further digest some of Powell’s other comments. Overall, Powell indicated that he was pleased with the strength of the economy and labor markets, and assuming inflation continues to moderate, the strong growth was not “a problem.”  Markets seemed to take that message to heart, rebounding further on Friday thanks to January’s strong employment report, comforted by the knowledge that the strength of the report wouldn’t necessarily dissuade the Fed from considering rate cuts later this year.​

Through Friday, 46% of S&P 500 companies had reported earnings. Thus far 72% have beaten their consensus earnings. According to industry group FactSet, consolidated earnings growth for the quarter is forecasted to be 1.6%.

Economic Commentary

Nonfarm payrolls increased 353K in January, the largest gain in a year, and nearly double the consensus forecast of 187K.  Payroll gains for November and December were also revised up by a total of 126K, indicating hiring during 4Q23 was stronger than previously thought. The unemployment rate was unchanged at 3.7%. Wage growth also showed strength, with average hourly earnings increasing by 0.6% in January, the fastest monthly pace in two years, and well ahead of expectations. Compared to a year ago, wages increased 4.5%, better than the forecasted gain of 4.3%.​

December job openings also surprised to the upside coming in at 9.03M vs. an expectation for 8.75M, a good sign for job seekers. The recent strength in jobs data was echoed in the January consumer confidence survey where respondents indicated that job opportunities felt more abundant. The survey reached the highest level since 2021, with a score of 114.8. ​

U.S. manufacturing contracted for the 15th consecutive month, but underlying details showed improvement vs. prior readings. The ISM Manufacturing Index increased to 49.1 in January, beating the consensus forecast of 47.2.  The new orders index moved into expansion territory for the first time in 17 months at a reading of 52.5 vs. expectations for 48.2.  The production index also crossed into expansion territory as order backlogs continued to be worked through.

Of Note

The Senate released a $118B bill providing military support for Ukraine, Israel, and other allies, as well as overhauling immigration and border enforcement policy. Passage by the House will be required before it can be enacted in law.

Market Indices   (As of 02/02/2024)

• ISM Services​
• Consumer Credit​
• Trade Balance​
• Weekly Jobless Claims