Week in Review: February 23, 2024
February 26, 2024
Recap & Commentary
Markets ended the week with the S&P 500 closing at a new record high, propelled in large part by a stronger-than-expected earnings report from dominant artificial intelligence (AI) chip maker Nvidia. Interest rates as measured by the 10-Year Treasury yield ended the week relatively unchanged, down 0.03% at 4.25%, after reaching an intra-week high of 4.35%, the highest level since November. Continued positive economic data and a retreat by market expectations at the start of the year that the Fed might cut interest rates by as many as six times, has supported the higher rates. In addition, last week saw some chatter enter the markets that following the most recent round of inflation data, the Fed’s next move on interest rates may be higher not lower. While that isn’t the prevailing view, it demonstrates the extent to which market expectations regarding rate cuts in 2024 have shifted.
Minutes from the Fed’s January FOMC meeting reinforced comments previously made by Fed Chair Jay Powell and other committee members following the meeting. The minutes revealed that participants generally “did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2%.” In addition, “most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2%.”
With recent inflation readings surprising to the upside, it looks increasingly like the ultimate number of rate cuts in 2024 will be closer to the Fed’s current forecast of three and are unlikely to begin before mid-year.
Economic Commentary
Existing home sales expanded 3.1% in January, to an annual rate of 4M as buyers took advantage of the recent dip in mortgage rates. Sales modestly beat the consensus forecast of 3.96M. Sales were down 1.7% from a year ago and remain at the lowest levels since the years following the great financial crisis. Home sales are likely to remain low in the near term, as recent economic data has pushed interest rates higher in February. Persistently low inventory has continued to create a floor under home prices. The nationwide median sale price hit an all-time high for January at $379,100.
The early PMI data for February indicated that the US economy continued to expand. The US PMI composite index fell to 51.4 from 52 in January, and slightly missed expectations of 51.8, but remained in expansion territory. Manufacturing PMI surprised to the upside at 52.5 vs. expectations for 50.5, due to strong production during the month. Services PMI remained in expansion during the month at 51.3 but came in lower than the 52.4 forecast. February’s data marked the first time in three months that both manufacturing and services expanded.
Initial weekly jobless claims fell to 201K, well below the 217K forecast, continuing a recent run of strength related to the labor market.
Of Note
Japan’s stock market (Nikkei 225) hit a new record high, 34 years after its prior high. After decades of battling deflation, Japan’s stock market is benefitting from the return of inflation, stimulative bank policies, and corporate reforms.
Market Indices (As of 02/23/2024)
- Core PCE Inflation
- New Home Sales
- Consumer Confidence
- Personal Income & Spending
- Durable Good Orders
- Weekly Jobless Claims
