Week in Review: January 1, 2024

January 8, 2024

Recap & Commentary

Markets opened 2024 on a down note with the S&P 500 snapping its streak of nine consecutive weekly gains. No one specific item drove the returns, instead it seemed that after such a strong 2023, investors were content to lock in gains now that the new year has started and ahead of upcoming inflation data.

The release of the minutes from the Fed’s December meeting showed that policy makers continue to grapple with elevated levels of uncertainty. According to the minutes, “participants viewed the policy rate as likely at or near its peak for this tightening cycle.” Despite that, committee members continue to see “a high degree of uncertainty surrounding the economic outlook” including the continued potential for upside risk to inflation.  The minutes also revealed that while committee members generally expect the Fed to cut rates over the course of 2024, as previously indicated in the Fed’s updated dot-plot projections released after its December meeting, due to “an unusually elevated degree of uncertainty” it was possible that further rate increases might be “appropriate.” The overarching takeaway from the minutes was that while Fed officials generally feel that their rate hikes are having the desired effect of cooling both inflation and labor markets, the path forward remains uncertain, even if the general expectations is that rate cuts will be forthcoming in 2024.

Economic Commentary

The U.S. economy added 216K jobs in December, vs. expectations for a 175K gain. Despite the strong headline number, payroll gains in prior months were downwardly revised by 71K, bringing the net gain to 145K.  The unemployment rate, as measured by the household survey, was unchanged at 3.7%, though the survey pointed towards an increase in the number of unemployed and a decline in the labor force participation rate to the lowest level since February.  Demand for workers, as measured by the JOLTs report, moved slightly lower in November to 8.79M job openings.  The number of jobs available was in line with estimates but fell to the lowest level since March 2021. The quits rate, viewed as a gauge for worker confidence in the job market, fell to 2.2%, the lowest level since September 20202. In a better sign for workers, average hourly earnings increased by more than anticipated at 0.4% during the month which could continue to bolster consumer spending but also put upward pressure on inflation. Compared to year ago, hourly earnings increased 4.1%

The divergence between the manufacturing and services sectors continued in December.  The ISM Manufacturing Index contracted for the 14th consecutive month on weak new orders. Only one of eighteen industries reported growth for the month.  The ISM Services index fell short of expectations but continued to expand, albeit slightly, during the month at a reading of 50.6. The business activity and new orders indices both remained in expansion, but the employment index fell sharply from 50.7 last month to 43.3.  Nine out of eighteen industries in the services sector reported growth during the month.

Of Note

Scientists announced the development of a new class of antibiotics with the ability to kill drug-resistant bacteria. In trials conducted with mice, the new antibiotic Zosurabalpin, was able to defeat certain highly drug-resistant bacteria prevalent in hospital settings. Early human trials are now beginning, but broader clinical use likely remains years away.

Market Indices   (As of 01/01/2024)

• Consumer Inflation (CPI)
• Producer Inflation (PPI)
• Trade Balance
• Weekly Jobless Claims