Weekly Market Update | Week 8, 2024


Key Takeaways

  • AI Excitement Pushes Stocks to Records
  • Rates Cuts Loom Large

Nvidia’s earning report gave the 2024 fresh legs.US equities were mostly higher this past week as the S&P 500 and Nasdaq were up for the 15th time in the past 17 weeks, ending the week at fresh record highs. However, the Russell 2000 finished the week down nearly 1%, reversing some small cap outperformance against large caps the prior two weeks.

Magnificent 7 names all higher except Tesla. Treasuries were mixed with the curve flattening; the 2Y yield ended the week around 4.70%, the highest since mid-December. The dollar index was down 0.4%, breaking five-straight weekly gains. Gold was up 1.3%. Bitcoin futures were down 0.6%. WTI crude was down 2.5%.

There were a number of moving pieces this week, though the key bullish narrative was AI optimism after Nvidia earnings, which some strategists said pushes back on the idea that the AI tailwind is petering out. Fedspeak continued to lean hawkish, though officials including Governor Waller and New York’s Williams continue to say they still expect cuts this year.

There were also some positive disinflation and consumer resilience signals out of Walmart earnings, while Toll Brothers results also signaled still-strong housing market demand. Other key pieces of the bullish narrative included M&A, more narrowing of corporate bond spreads, and the Street still looking for double-digit 2024 EPS growth on Magnificent 7 tailwinds.

Some of the latest economic data also continued to show a strong economy and labor market, supporting the soft landing narrative. Initial jobless claims fell back near post-Covid lows, while flash February manufacturing PMI saw the sharpest monthly increase since Sep-22. The PMI report also showed factory output at the fastest pace in ten months, while input cost growth was the lowest since Oct-20 and S&P economists said selling prices are running at a level consistent with the Fed’s 2% target.

A hawkish Fed remains a key overhang as officials continued to push higher-for-longer messaging. Some economists also noted the Fed’s data dependence may push the timing of rate cuts out further as it waits for actual price changes rather than just falling inflation expectations, while officials continue to signal they prefer to be patient rather than have to potentially backtrack on easing if inflation reemerges.

Positioning was seen flipping from a tailwind to a headwind with some sell-side strategists noting positioning still sits near the highest levels in months. Some also noted cash on the sidelines continues to dwindle, which could suggest dampened dry powder dynamic.

This week’s February flash Services PMI disappointed, posting the slowest increase of new business in three months. Other pieces of the bearish narrative include narrow breadth (Nvidia accounts for around a quarter of total S&P 500 returns YTD), more talk of an AI bubble, downward earnings growth for the S&P 500 ex-Mag 7, more downward pressure on money supply growth, dampened tax refund tailwind, softening buyback momentum, a weak 20Y auction this week, CRE overhang, and ongoing geopolitical instability.

Nvidia earnings were the corporate highlight of the week. The company posted revenues well ahead of estimates and guided came in well ahead of estimates. Management sad demand is surging across companies, industries, and nations, and said that accelerated computing and generative AI have hit a tipping point.

However, some have also cautioned that AI has moved into its irrational exuberance phase, flagging a growing disconnect between valuations and fundamentals. Walmart was another key earnings report last week with pricing commentary the biggest focus. Management said like-for-like sales inflation was around 1% in Q4, down ~160bp from Q3 levels, while general merchandise prices are lower than a year ago, and even two years ago in some categories.

Market median year-end fed funds rate rose this week to around 4.65% from around 4.50% a week ago. This week’s January FOMC minutes didn’t add much new but continued to support the Fed’s hawkish-leaning narrative. However, a busy week of Fedspeak included Fed Governor Waller saying there’s no great urgency to ease given the strong economy, though he also said he expects cuts to begin later this year. New York’s Williams (voter) also noted inflation remains bumpy, though he still thinks it would be appropriate to ease later this year (Axios).

A busy macro week ahead includes new January new home sales and February Dallas Fed Index  on Monday; January durable goods orders, February Consumer Confidence  on Tuesday; the second Q4 GDP reading on Wednesday; the January PCE report and January pending home sales index on Thursday; and ISM Manufacturing (10 ET) on Friday. Another busy week of Fedspeak include New York’s Williams speaking on both Wednesday and Thursday, and Fed Governors Waller and Kugler speaking on Friday

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 up 5 this week. There are 626 oil and gas rigs operating in the US – Down 127 from last year.

Metals Complex 

Employment Picture 

Weekly Unemployment Claims – Released Thursday 2/22/2024 – In the week ending February 17, the advance figure for seasonally adjusted initial claims was 201,000 a decrease of 12,000 from the previous week’s revised level. The 4-week moving average was 215,250 a decrease of 3,500 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

Existing Home Sales – Released 2/22/2024 – The Existing home sales increased in January following a decrease in December. Existing home sales in January increased 3.1% from December but fell 1.7% year over year. Existing home sales increased to 4.00 million in January seasonally adjusted. The median price of existing homes for sale increased to a record high of $379,100.

Recent Economic Data – Blue Links bring 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.

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 SalesReleased 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.

Next week we get data on the 2nd Estimate of 4th Quarter GDP, Durable Goods, New Residential Sales, Personal Income, Consumer Confidence, Chicago PMI, Manufacturing PMI, and U.S. Construction Spending.

Disclaimer

This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any stock, bond, currency or CFD contract.

Some information contained herein has been obtained from third party sources believed to be reliable, but has not been independently verified by us; its accuracy or completeness is not guaranteed. Our commentary is based on information considered to be reliable, but no representation is made that it is accurate or complete, and should not be relied upon as such.

The views expressed represent the opinions and beliefs at the time of this commentary and are not meant as a market forecast. These views are subject to change at any time based on market or other conditions and Good Life Advisors disclaims any responsibility to update such views. This information may not be relied on as advice or as an indication of trading intent on behalf of any portfolio. Portfolio investments may change at any time.

Economic and performance information referenced is historical and past performance does not guarantee future results. References to future returns are not promises or estimates of actual returns we may achieve, and should not be relied upon.

No investment strategy or risk management process can guarantee returns or eliminate risk in any market environment. Investing in securities involves risk of loss. Stock and Bond prices can decline significantly in response to adverse market conditions, company-specific events, and other domestic and international political and economic developments. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future.

While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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