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2020 Financial Markets Update

Week in Review: January 19, 2024

January 22, 2024

Recap & Commentary

Markets ended the week with both the S&P 500 and Dow Jones Industrial Average closing at new record highs. Positive consumer-related data and some upbeat earnings reports helped fuel the rally, as did Congress avoiding a partial shutdown by approving a spending bill to fund the government until March.

Economic data related to the consumer showed improving optimism coupled with still strong spending, giving support to the idea that while the economy is slowing, it is not headed for a cliff. Though the positive data could delay the arrival of the Fed’s first rate cut, investors currently seem willing to accept that in exchange for an economic “soft landing.” At times in 2023, similar data would have elicited a negative response, fueled by concerns that such data could result in additional Fed rate hikes. Now, however, investors seem rather convinced that the Fed is done raising rates and at most, might delay its first cut, in response to positive economic data.

Reflecting the more upbeat data, expectations for a March rate cut fell during the week, from 77% to 46%. Markets now expect the first rate cut to occur following the Fed’s May meeting.

Through Friday, 10% of S&P 500 companies had reported 4Q23 earnings.  Thus far, 62% of companies have beaten their consensus forecasts. According to industry group FactSet, aggregate earnings growth for 4Q23 is expected to fall 1.7%. On Thursday, Taiwan Semiconductor Manufacturing (TSMC), one of the world’s largest chipmakers, and a large supplier of chips for companies such as Nvidia and Apple, said it expects to see continued strong demand in 2024.

Economic Commentary

December retail sales showed that consumers continued to spend at a brisk pace during the holidays, despite growing concerns about their wherewithal to do so. Sales for the month rose 0.6%, better than the expected 0.4% increase.  Compared to a year ago, retails sales were up 5.6% vs. November’s 4.0% pace.

Paired with the stronger spending, consumer sentiment jumped in the first part of January to its highest level since July 2021. The increase was broad-based across age, income, education, and geography and drove feelings about both current and future economic conditions higher. The strong consumer sentiment data could help bolster further consumer spending, which in turn might increase the odds of a successful economic soft landing.

Housing data suggested that conditions remain challenging as existing home sales and housing starts fell -4.3% and -1.0%, respectively, from November levels.  For existing home sales, the decline pushed the annualized pace of sales to 3.78M, its lowest level since 2010. The total number of existing homes sold in 2023 fell 22% to 4.09M, the lowest level in 30 years. Still-high mortgage rates has continued to dissuade many would-be sellers, while rising prices has made affordability, particularly for first time home buyers, challenging.

Weekly jobless claims fell 16K to 187K, their lowest level since September 2022, indicating that labor market conditions remain robust for the time being.

Of Note

The standard deduction for married couples filing their taxes jointly for 2023 was increased by the IRS to $27,700.  That marks a 7% increase from 2022, the largest such annual increase since 1985, according to the Wall Street Journal.

Market Indices   (As of 01/19/2024)

S&P 5001.2%
Small Caps-0.3%
Intl. Developed-2.1%
Intl. Emerging-2.6%
U.S. Bond Market-1.1%
10-Year Treas. Yield4.13%
U.S. Dollar0.8%
WTI Oil ($/bl)$74
Gold ($/oz)$2,032

The Week Ahead

  • 4Q23 GDP
  • Core PCE Inflation
  • Manufacturing PMI
  • Services PMI
  • New Home Sales
  • Pending Home Sales
  • Personal Income & Spending
  • Durable Goods Orders

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