Weekly Market Update | Week 7, 2024

Key Takeaways

  • Small-caps and Value Led
  • Inflation Remains Sticky

It hasn’t happened that often recently but small-caps and value led last week. The Russell 2000 again outperforming the S&P despite over 4% drawdown on Tuesday following hotter CPI print. Treasuries were weaker with some curve flattening. Dollar index was slightly up the greenback having strong performance on the yen cross. Gold was down 1.2%. Oil ended the week up 2.1%, touching levels not seen since November 2023 on growing fears of a widening war between Israel and Hezbollah in the Middle East.

This week’s focus was on CPI and PPI readings coming in hotter than expected, lending support for the “higher for longer” Fed rate cut narrative and prompting some risk-off sentiment. First likely rate cut now being priced for June after CPI left odds of a March cut at a virtually 0% chance. Shelter, auto insurance and medical care were some of the drivers of the hotter CPI print. Fed’s Goolsbee provided some dovish reprieve noting slightly higher inflation over coming months is still consistent with path back to 2% target, he also cautioned the impact of overtightening on Fed’s employment mandate. On the hawkish side, Fed’s Barkin said January’s economic data has been messy and not that good, while Bostic argued for more patience before cutting and expects a first cut in the summer. Despite hot inflation data, analysts still see disinflation narrative supported by softening wage growth, rising productivity, ongoing goods disinflation, and falling inflation expectations.

Beyond the CPI and PPI, there was a slew of other economic data releases this week. January retail sales report was weaker across the board, with headline retail sales down m/m, missing consensus, and control group sales posted surprise decline. Analysts said some weakness was likely driven by seasonal adjustments and harsh January weather. February preliminary Michigan Consumer Sentiment was up and roughly in-line with consensus. Elsewhere, above-consensus reads for both NY Fed’s Empire survey and Philadelphia Fed’s manufacturing indicator (which saw its first positive print since August). Initial claims printed at below consensus despite continued wave of layoff notices; however, continuing claims were a bit higher. February NAHB housing market index up four points and ahead of consensus.

Overall, there were multiple bullish and bearish themes threaded into the week’s narrative. Bulls would highlight the “January effect” on CPI data, the broader disinflation theme being intact (as increasingly seen in Q4 earnings), the growing focus on operational efficiency will boost margins, small-caps outperformance this week despite steep CPI selloff, AI proliferation story still running strong with Apple working on new product. Bears would highlight hot CPI/PPI readings hurt disinflation story, more hawkish Fed repricing expectations, weaker-than-expected January retail sales, very stretched long positioning and high concentration in big tech from AI bubble, and recession concerns around Japan and UK.

Fixed Income

Yield Curve

Dec FOMC Statement      Balance Sheet Reduction Plan       Credit, Liquidity and Balance Sheet    Federal Reserve Dot Plots  

Treasury.gov yields    FOMC Policy Normalization Statement     Longer- Run Goals Jan 2022

Foreign Exchange Market

Energy Complex 

The Baker Hughes rig count was down 2 this week. There are 621 oil and gas rigs operating in the US – Down 139 from last year.

Metals Complex 

Employment Picture 

Weekly Unemployment Claims – Released Thursday 2/15/2024 – In the week ending February 10, the advance figure for seasonally adjusted initial claims was 212,000 a decrease of 8,000 from the previous week’s revised level. The 4-week moving average was 218,500 an increase of 5,750 from the previous week’s revised average.

January Jobs Report –  BLS Summary – Released 2/2/2024 –  The US Economyadded 353k nonfarm jobs in January and the Unemployment rate was unchanged at 3.7%. Average hourly earnings increased 19 cents to $34.55.  Hiring highlights include +74k Professional and Business Services, +70k Healthcare, and +45k Retail Trade.

  • Average hourly earnings increased 19 cents/0.6% to $34.55.
  • U3 unemployment rate was unchanged at 3.7%. U6 unemployment rate increased 0.1% to 7.2%.
  • The labor force participation rate was unchanged at 62.5%.
  • Average work week decreased 0.2 to 34.1 hours.

Employment Cost Index – Released 1/31/2024 – Compensation costs for civilian workers increased 0.9% for the 3-month period ending in December 2023. The 12-month period ending in December 2023 saw compensation costs increase by 4.2. The 12-month period ending December 2022 increased 5.1%. Wages and salaries increased 4.3 percent over the 12-month December 2023 and increased 5.1 percent for the 12-month period ending in December 2022. Benefit costs increased 3.8 percent over the 12-month period ending December 2023 and increased 4.9 percent for the 12-month period ending in December 2022. This report is published quarterly.

Job Openings & Labor Turnover Survey JOLTS – Released 1/30/2024 – The number of job openings changed little at 9.0 million on the last business day of December, the U.S. Bureau of Labor Statistics reported. Over the month the number of hires and total separations was little changed 5.6 million and 5.4 million, respectively. Within separations, quits (3.4 million) and discharges (1.6 million) changed little.

This Week’s Economic Data- Blue links take you to data source

Housing Starts– Released 2/16/2024 – January housing starts came in at 1,331,000, 14.8% below the December estimate and is 0.7% below the January 2023 rate. Building permits were 1.5% below the December rate at $1,493,000 but 8.6% above the January 2023 rate.

Producer Price Index – Released 2/16/2024  The Producer Price Index for final demand increased 0.3 percent in January, seasonally adjusted. Final demand decreased 0.1 percent in December. On an unadjusted basis, the index for final demand moved up 0.9 percent for the 12 months ended in January.

Industrial Production and Capacity Utilization Released 2/15/2024 – Industrial production decreased 0.1% in January following no change in December. Manufacturing decreased 0.5%. Utilities output increased 6.0%. Mining decreased 2.3%. Capacity utilization declined 0.2% in January, a rate that is 1.1 percent below its long-run average.

Retail Sales– Released 2/15/2024 – Headline retail sales decreased 0.8% in January and are up 0.6% above January 2023.

Consumer Price Index – Released 2/13/2024  The Consumer Price Index for All Urban Consumers increased 0.3 percent in January on a seasonally adjusted basis, after increasing 0.2 percent in December. Over the last 12 months, the all items index increased 3.1 percent before seasonal adjustment.

Recent Economic Data – Blue Links bring you to data source

U.S. Trade Balance – Released 2/7/2024 –  The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $62.2 billion in December, up $0.3 billion from $61.9 billion in November. December exports were $258.2 billion, $3.9 billion more than November exports. December imports were $320.4 billion, $4.2 billion more than November imports. The December increase in the goods and services deficit reflected an increase in the goods deficit of $0.7 billion to $89.1 billion and an increase in the services surplus of $0.4 billion to $26.9 billion.

Consumer Credit  Released 2/7/2024  Consumer credit increased at a seasonally adjusted annual rate of 2.4 percent in December. Revolving credit increased at an annual rate of 8.4 percent, while nonrevolving credit increased at an annual rate of 0.4 percent.

PMI Non-Manufacturing Index – Released 2/5/2024 – Economic activity in the services sector expanded in January for the thirteenth consecutive month as the Services PMI® registered 53.4 percent, 2.9 percentage points higher than December’s reading of 50.5 percent.

U.S. Construction Spending– Released 2/1/2024 – Construction spending during December 2023 was estimated at a seasonally adjusted annual rate of $2,096.0 billion, 0.9 percent above the revised November estimate of $2,078.3 billion. The December figure is 13.9 percent above the December 2022 estimate of $1,840.9 billion.

PMI Manufacturing Index – Released 2/1/2024 – The January Manufacturing PMI registered 49.1 percent, up 2.0 percent from December. The manufacturing sector continued in contraction for the 15th consecutive month following one unchanged month and 28 months of growth prior to that. The New Orders Index entered expansion territory at 52.5 percent, 5.5 percentage points higher than the figure of 47.0 percent recorded in December. The Production Index reading of 50.4 percent is a 0.5-percentage point increase compared to December’s figure of 49.9 percent.

Chicago PMI – Released 1/31/2024 – Chicago PMI remained in contraction territory in January unexpectedly declining to 46.0 points down from 47.2 points in December. The contraction follows a contraction in December which follows one month of expansion and follows 14 consecutive months of contraction in business activity in the Chicago region.

Consumer Confidence Released 1/30/2024  Consumer Confidence increased in January, up to 114.8 from 108.0 in December. Expectations increased from 81.9 to 83.8. January’s increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead, and generally favorable employment conditions.

US Light Vehicle Sales– Released 1/26/2024 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 15.893 million units in December.

Personal Income – Released 1/26/2024 – Personal income increased $60.0 billion (0.3 percent at a monthly rate) in December. Disposable personal income (DPI) increased $51.8 billion (0.3 percent). Personal consumption expenditures (PCE) increased $133.9 billion (0.7 percent).

New Residential Sales  Released 1/25/2024 – Sales of new single‐family houses in December 2023 were at a seasonally adjusted annual rate of 664,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 8.0 percent above the revised November rate of 615,000 and is 4.4 percent above the December 2022 estimate of 636,000. The median sales price of new houses sold in December 2023 was $413,200.  The average sales price was $487,300.  At the end of December, the seasonally adjusted estimate of new homes for sale was 453,000, a supply of 8.2 months at the current sales rate.

Durable Goods Released 1/25/2024 – New orders for manufactured durable goods in December, up three of the last four months, increased $0.1 billion or virtually unchanged to $295.6 billion, the U.S. Census Bureau announced today. This followed a 5.5 percent November increase. Excluding transportation, new orders increased 0.6 percent. Excluding defense, new orders increased 0.5 percent. Primary metals, also up three of the last four months, drove the increase, $0.4 billion or 1.4 percent to $27.1 billion.

Advance Estimate of 4th Quarter 2023 GDP – Released 1/25/2024 – Real gross domestic product (GDP) surpassed expectations and increased at an annual rate of 3.3 percent in the fourth quarter of 2023, according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 4.9 percent. The GDP “advance” estimate is based on source data that are incomplete or subject to further revision. The increase in real GDP reflected increases in consumer spending, exports, state and local government spending, nonresidential fixed investment, federal government spending, private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Existing Home Sales Released 1/19/2024 – The Existing home sales decreased in December following an increase in November which followed five consecutive months of declines. Existing home sales in December decreased 1.0% from November and fell 6.2% year over year. Existing home sales decreased to 3.78 million in December seasonally adjusted. The median price of exiting homes for sale increased to a record high of $389,800.

Next week we get data on Existing Home Sales.


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Data Sources: 

Conference Board Economic Indicators   Bureau of Economic Analysis (BEA)   Congressional Budget Office (CBO)     U.S. Bureau of Labor Statistics (BLS)    Federal Reserve Economic Data (FRED Charts)

CME Fed Watch   U.S. Treasury – Yields   U.S. Census Bureau    Institute for Supply Management (ISM)    Weekly DOL Employment Data    BLS Monthly Jobs Report    JOLTS      All capital in one visualization 2020

US Energy Admn (EIA)   BLS Consumer Price Index CPI      BLS Producer Price Index PPIAtlanta Fed GDPNOW    NY Fed Nowcast GDP     US Census Bureau Housing Starts   U.S. Energy Admn

Consumer Credit  USCB Retail Sales   Construction Spending      Federal Reserve Dot Plots 2017   NY Empire Index    Philadelphia Federal Reserve   P/E Ratio Data -Yardeni Research

Technical Analysis Info: Koyfin.com  StockCharts.com – Financial Charts    Exponential vs Simple Moving Average

Other links: 1973 Arab Oil Embargo    Hunt Brothers Silver    Asian Contagion   Long-Term Capital bailout