Week in Review: March 1, 2024

March 4, 2024

Recap & Commentary

Markets ended the week with the S&P 500 closing at a new record high. The tech-heavy NASDAQ also set a new record during the week, surpassing its prior high from November 2021.

For most of the week, markets lacked direction as they awaited the release of core personal consumption expenditures (PCE) data, the Fed’s preferred inflation measure. Following recent stronger-than-expected CPI and PPI reports, markets were already braced for a reading showing an uptick in the pace of monthly inflation. January saw core PCE prices increase 0.4%, up from December’s 0.1% pace, but markets rallied nonetheless, seemingly relieved that it wasn’t any “hotter”. The release served to further corroborate the Fed’s continued wariness about easing monetary policy too soon.

Given the ongoing concerns about an economic slowdown/recession, it makes sense that investors remain wary about the recent strength of equity markets, with the S&P 500 up 7.7% through Friday, following a 24% gain in 2023.  However, it is important to remember that the markets are not the economy and vice versa, and that according to Ned Davis Research, since 1930 the average bull market has lasted nearly 700 days.  As measured from its lows in October 2022, the current bull market is just under 350 days. In other words, while nothing is guaranteed, equity markets could, as they often do, continue to climb the current “wall of worry” for the time being.

Through Thursday, 97% of S&P 500 companies had reported fourth quarter earnings. Thus far, 73% of reporting companies have beaten their earnings expectations, slightly below the 5-year average of 77%. According to industry group FactSet, consolidated earnings growth is expected to be 4.0%, up from the expected growth forecast of 1.5% at the end of December.

Economic Commentary

The Core PCE prices index was in line with expectations in January, increasing 0.4% for the month, up sharply from December’s 0.1% pace. However, compared to a year ago, core PCE slowed 0.1% to 2.8%. Goods prices declined 0.2% in January, while services prices increased 0.6%. Over the past year, goods prices declined 0.5%, while services prices increased 3.9%. Notably, services ex. housing, increased 0.6% in January, marking the third fastest monthly increase in the last 15 years. The broad increase in services prices is yet to slow consumer spending. Services spending rose 1% in January, the largest monthly gain in a year. Since last year, services spending increased 6.3%, propped up by a 4.8% increase in personal income over that same timeframe. Personal income rose 1% in January, though much of that was attributable to a social security cost of living adjustment, and after adjusting for inflation, wages and salaries were effectively flat during the month.

US manufacturing, as measured by ISM data, slowed more than expected in February, contracting for the 16th consecutive month. Both new orders and production slipped into contraction territory, while employment contracted for the 5th consecutive month driven by significant layoff activity.

Of Note

Congress passed, and President Biden signed, a short-term funding bill averting a government shutdown. Congress now has until March 8 and March 20 to craft new funding bills to avert further partial shutdowns.

Market Indices   (As of 03/01/2024)

• Nonfarm Payrolls
• JOLTs
• Services PMI
• Manufacturing PMI
• Consumer Credit
• Weekly Jobless Claims