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Economic Update 2-20-2024

  • Economic data for the week was mixed, including disappointments in retail sales and industrial production. Consumer and producer inflation both came in higher than expected, while housing data was mixed, with fewer starts but stronger builder sentiment.
  • Global equities saw gains last week, despite mixed economic data. Bonds fell back as interest rates ticked higher along with higher-than-expected inflation data. Commodities were little changed, with crude oil prices only slightly higher.

U.S. stocks started decently but ran into the wall of CPI inflation on Tuesday morning, which showed less improvement than expected. However, weaker retail sales helped the slowing growth narrative, as the timing and depth of interest rate cuts have been the primary concerns of markets over the past several weeks. While there were a variety of factors related to the new year, stickier prices could cause the Fed to delay the implementation of rate cuts further into the year.

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Economic Update 2-12-2024

  • In a quiet week for economic data, the ISM services index rose further into expansion, jobless claims improved, while the survey of senior bank loan officers showed continued tightening of conditions into the 4thquarter of last year.
  • Stocks ended positively around most of the globe last week, led by a strength in the U.S. and China. However, bonds lost ground as longer-term interest rates ticked higher. Commodities ended slightly higher, driven by a rebound in crude oil and Middle East risks.

U.S. stocks saw continued gains last week, with the S&P 500 exceeding the milestone 5000 level. These tend to result in enhanced media attention on stocks, sometimes related to a ‘fear of missing out’ effect by investors. We are also reminded that, as stocks have tended to move upward over the long haul, new all-time highs are not necessarily cautionary signals.

Sector results were led by technology, up over 3%, followed by consumer discretionary, health care, and industrials. Defensive sectors consumer staples and utilities each lost over a percent on the week, with the latter likely along with higher interest rates. However, real estate saw minor gains for the week. From an earnings perspective, per FactSet, about two-thirds of firms in the S&P 500 have now reported results, with the blended year-over-year earnings gain now having improved to 2.9% (compared to a slight negative expectation at the start of earnings season).

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Economic Update 2-05-2024

  • Economic data for the week included the Federal Reserve keeping interest rates unchanged, as expected. ISM manufacturing data improved, while the employment situation report for January came in far stronger than expected.
  • Equities fared well in the U.S. especially, with continued better-than-expected earnings. Bonds gained as long-term yields fell back. Commodities overall declined, led by a lower risk premium in crude oil prices.

U.S. stocks were mixed until Wednesday, when the FOMC statement and post-meeting press conference alluded to lower chances of a March rate cut—contrary to market hopes for a sooner-than-later ease. Faster easing has been the growing narrative this year, despite continued strong economic data (and especially considering very strong labor data on Fri.).

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Economic Update 1-22-2024

  • For the holiday-shortened week, economic data included gains in retail sales, consumer sentiment, and homebuilder sentiment, while industrial production was little changed, and several housing metrics weakened. 
  • Equities gained in the U.S. as earnings reports have started, while foreign stocks fell back. Bonds lost ground globally upon higher interest rates and a stronger dollar. Commodities were mixed, with little change in crude oil prices last week. 

U.S. stocks fell back early in the week as Fed governor Waller’s comments and strong retail sales pointed to a path of interest rates remaining higher for longer than the dovish sentiment of late 2023; however, they recovered by week’s end to a new record high for the S&P 500. By sector, technology led with a 4% gain, along with strong semiconductor sentiment related to artificial intelligence projects (including Taiwan Semiconductor—granted an emerging markets stock), while energy and utilities each fell back by over -3%. Real estate declined -2% with interest rates rising a bit on the week. 

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Economic Update 1-16-2024

  • Economic data for the week included consumer price inflation coming in a bit stronger than expected, but a slight improvement on a year-over-year basis compared to the prior month. On the other hand, producer price inflation came in a bit weaker than expected. 
  • Equities saw gains in developed markets, while emerging markets declined, led by weakness in China. Bonds fared positively as yields pulled back along with eroding inflation worries. Commodities were mixed for the week, with gold higher and crude oil lower. 

U.S. stocks saw gains last week, with inflation results seeing mixed sentiment on the consumer side, while producer prices were a positive sign. Sector results were led by technology and communications up 3-5%, while energy and utilities lagged with negative returns of -2%. Real estate gained slightly along with a drop in interest rates.  

Earnings season for Q4 began last week, with the big banks reporting first, as usual. It’s expected that some of Q3’s earnings strength was pulled forward and will dampen Q4 results. Per FactSet, Q4 S&P 500 year-over-year earnings growth is expected to come in at -0.1%; however, the last several quarters have seen an improvement of several percent as earnings season progressed, with downcast expectations having been exceeded. For Q4, the strongest sectors are expected to be communications, utilities, and consumer discretionary, with earnings growth of 20-40%, with energy and materials lagging, with earnings of -20% to -30%. Revenue is expected to run at about a 3% growth rate, led by 6% gains in real estate, technology, and communications. For the full year 2023, earnings growth is expected to be barely positive at 0.5%, well below average, although hopes for Q1 2024 remain near average (at 6%), and full year 2024 up near 12%. Full year estimates don’t provide much clarity about the impact on earnings from recession expectations, though, which could include a positive path throughout the year, or a dip and later recovery, as has been the case in the past. Very early earnings growth estimates for 2025 show an even better rate of 13%. While some watchers view these as a bit optimistic, stock prices have tended to follow earnings over time (short-term sentiment and valuation impact aside), which creates a better story than some are predicting. 

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Economic Update 1-8-2024

  • In the first week of the new year, economic data continued to show a mixed picture. ISM manufacturing continued to contract, but did improve, while ISM services grew, but at a far slower pace. The monthly employment report for December showed gains far stronger than expected. 
  • Equities fell back globally to begin the year, resulting from geopolitical tensions and signs the Fed may not cut rates as dramatically and as quickly as hoped. Bonds lost ground, as yields ticked higher, and foreign bonds were hampered by a stronger dollar. Commodities were mixed, with oil up and metals down. 

U.S. stocks began the new year on a sour note, resulting in the first negative week in months. Largely, this was due to rising expectations for rate cuts happening soon perhaps being overdone. Since stocks have moved essentially straight up over the last few weeks, a bit of a pullback wouldn’t be too surprising, which occurred. By Friday, market sentiment pulled back again in response to the stronger-than-expected employment report, which some thought could lower the odds of the Fed cutting rates anytime soon. However, this was offset by an ISM services report coming in at the edge of expansion may have offset that somewhat. Economic data continues to come in showing mixed results, leaving investors without clear direction. 

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Economic Update 1-2-2024

  • In a holiday-shortened week, economic data was light, consisting of increases in home prices from the fall, while jobless claims continued to be little changed. 
  • Global equities saw gains to close out the year, with emerging markets outperforming developed. Bonds saw minor gains as interest rates were stable to lower. Commodities fell back, largely due to continued weakness in crude oil. 

U.S. stocks ended 2023 seeing gains for the ninth consecutive week, despite low holiday volume. By sector, defensives consumer staples, health care, and utilities led the way, each up around a percent. Energy stocks fell by over a percent, along with oil prices. Real estate also saw gains of nearly a percent, along with stable to lower interest rates. 

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Economic Update 12-18-2023 

  • Economic data for the week included the Federal Reserve keeping interest rates unchanged, while alluding to easing policy at a further pace than first expected in 2024. Both producer and consumer inflation showed continued signs of some further deceleration. Industrial production and retail sales showed gains, although trends for the latter remain less robust after correcting for inflation. 
  • U.S. equities gained with optimism of the U.S. Fed hinting at easier policy, while a weaker dollar buoyed foreign stocks higher. Bonds earned positive returns along with a drop in interest rates. Commodities gained on net, led by metals and energy. 

U.S. stocks experienced gains for the seventh straight week as investors cheered the Federal Reserve’s dot plot, released after the meeting, which alluded to no additional expected rate hikes in addition to four cuts in 2024. This helped reinforce the soft landing case that financial markets had been hoping for, as well as potential for a ‘regime shift’ from tightening to easing. Producer prices also came in lower than expected, improving the case for inflation generally decelerating. 

Fed Note

12/14/2023 brad

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At the December meeting, the Federal Reserve Open Market Committee held the Fed funds rate steady at 5.25-5.50%, where it’s stood since July. There were no dissents. 

The formal statement was minimally changed with a notation that economic growth ‘has slowed’ from its strong pace in the third quarter, and that inflation ‘has eased over the past year’ while remaining elevated. The word ‘any’ was inserted prior to the potential for additional policy firming, which appears minimal, but appears a clue to the reduced chances of future hikes. The Fed’s Summary of Economic Projections document showed a lower path of Fed funds by several tenths each in 2023 (5.4%), 2024 (4.6%), 2025 (3.6%), while 2026 was held steady at 2.9%, as was the longer-run path at 2.5%. 

Part of the rationale for holding rates steady at recent meetings has been the ‘tightening’ effect of rising long-term yields. But, since late October, the 10-year U.S. Treasury yield has fallen from 5.0% at its peak down to as low as 4.1%, along with some falling inflation data and policy expectations. Just as high and rising long-term rates do some of the Fed’s work in tightening policy, falling yields work against it by effectively ‘easing’ conditions. 

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Economic Update 12-11-2023 

  • Economic data for the week included the employment situation report that continued to show labor market strength, and gains in ISM services, while job openings fell back. 
  • Global equities were mixed last week, with minor gains in the U.S., mixed results in the rest of the developed world, and a net decline in emerging markets. Bonds were little changed as well, as interest rates stabilized at lower levels. Commodities lost ground in several groups, with the headwind of a stronger U.S. dollar. 

U.S. stocks earned small gains last week. Early in the week, stock sentiment turned negative as doubts that the Fed would cut rates sooner than later began to sink in, with some consternation about how the Friday employment situation report for November would turn out (the result was slower, but not weak job growth), while consumer sentiment sharply improved. Small cap stocks outperformed large caps, along with lessened interest rate fears. 

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Economic Update 12-04-2023 

  • Economic data for the week included Q3 GDP being revised slightly higher, while PCE inflation continued to decelerate. Manufacturing data remained contractionary on net, and new and pending home sales fell back. 
  • Stocks gained globally as falling inflation and central banker comments led to hopes for lower interest rates next year. Bonds fared especially well, due to a drop in long-term rates leading to a strong duration effect. Commodities were mixed to down, with higher gold prices offset by weaker crude oil, despite OPEC+ production cuts. 

U.S. stocks fared positively to end November. In fact, the month’s S&P total return of 9.1% was the best single month in over a year. Positive sentiment was related to slower PCE inflation reading during the week, showing further deceleration in prices. More so, this was tied to some optimistic comments from Fed board member Waller, who has been seen as hawkish up until now, having updated his view of inflation ultimately getting back to 2% with current policy, and better chances of even ‘lowering the policy rate’ over the next 3-5 months. Markets jumped on the news, as this provided some hope for even more substantial rate cuts next year. However, before this exuberance got too out of hand, Chair Powell attempted to quash these dovish expectations, hinting at the still-possible chance of rate hikes ‘if’ data demands it. Seemingly now that probabilities are high that we’re at ‘peak’ Fed funds rate, the question of year-end has turned to rate cuts. 

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Economic Update 11-27-2023 

  • In a holiday-shortened week, economic data included the index of leading economic indicators continuing their slide downward over the past half-year. Durable goods orders also declined, as did existing home sales. On the positive side, jobless claims fell back. 
  • Equities were slightly higher last week, on light volume in the U.S. and few dramatic data releases. Bonds were mixed as interest rates ticked slightly higher, but spirits were boosted by a decent auction for long-term U.S. Treasuries. Commodities were also mixed with gains in metals offset by a slight drop in oil prices. 

U.S. stocks ended the light volume holiday week slightly higher, with minimal economic information to review. Every sector ended in the positive, led by health care and consumer staples, while energy lagged with minimal gains, following minimal change in petroleum prices. The closely-watched earnings news from Magnificent 7 member Nvidia resulted in a beat of earnings and revenue expectations, but a stock price decline related to forward-looking guidance related to China. Otherwise, the drama for the week included the conclusion of the OpenAI executive suite drama, following the firing of the CEO, his move to primary investor Microsoft, and then a return to the artificial intelligence firm by Thanksgiving after an employee revolt. The newsworthiness of this is less financial in the near-term, but remains tied to excitement about which firms become most dominant in AI and the battle over commercialization—much of which remains to be determined. 

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Economic Update 11-20-2023 

  • Economic data for the week included producer and consumer inflation readings decelerating far faster than expected, boosting the mood of financial markets. Manufacturing releases were mixed, as was housing data, while retail sales fell back a bit. 
  • Global equities saw gains as consumer price inflation eased, leading to lower interest rates. Bonds gained accordingly as well. Commodities were mixed, with gains in metals offset by a continued drop in crude oil as supplies stayed elevated. 

U.S. stocks fared positively last week, with a sharp recovery in small cap outgaining large cap. This was despite starting the week negatively, as markets took notice of Moody’s ‘downgrade’ of its U.S. debt outlook from ‘stable’ to ‘negative’ as the prospect of another U.S. government shutdown loomed (deadline being Friday). However, the long-awaited consumer price inflation report showed strong improvement, with positive sentiment carrying over to much of the rest of the week. Congress passed a continuing resolution bill to extend government funding at current levels until late January 2024, using a ‘staggered’ approach. This brought some relief as well, although the risk of a government shutdown next year remains high as both sides have found little to agree upon. Perhaps there was also a bit of positive sentiment from the President Biden-President Xi meeting in San Francisco, if only as it perhaps lowered geopolitical surface tensions between the U.S. and China somewhat. 

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Economic Update 11-13-2023 

  • In an oddly quiet week for economic data, consumer sentiment declined, jobless claims were little changed, while the Fed’s bank loan officer survey showed continued tighter standards. 
  • Stocks were mixed globally with gains in the U.S. large cap group and a small increase in Europe offset by declines elsewhere due to mixed sentiment, mixed data, and disappointing central bank communications. Bonds generally declined as interest rates ticked back up. Commodities lost ground generally, led by a drop in crude oil prices with fewer geopolitical concerns. 

U.S. stocks were mixed on the week, with large caps experiencing gains, while small caps weakened. Equities generally fared well other than Thurs., when Fed Chair Powell reiterated in a speech that policy remains ‘restrictive,’ and the FOMC is keeping all options open. More directly, he noted the FOMC was ‘not confident’ that policy was restrictive enough. In contrast to the more dovish post-FOMC meeting message the prior week, this was taken more hawkishly (likely intentionally, to offset the earlier message). Other than communication, however, little else has changed. Threats of a government shutdown in a week loom again, with odds of a temporary extension until the new year remaining the highest probability case. 

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Economic Update 11-06-2023 

  • Economic data for the week included the Federal Reserve holding interest rates steady, ISM manufacturing and services both showing declines, gains in home prices, while the employment situation report showed job positive gains, but at a weaker pace than expected. 
  • Equities rose globally as hopes of central bank peak rates looked increasingly likely, and acceptable (not too good or too soft) U.S. economic data. Bonds fared positively as interest rates declined sharply following the FOMC meeting. Commodities were mixed, with crude oil prices pulling back. 

U.S. stocks experienced sharp gains last week, in fact the best week of 2023 thus far. Early week results were strong with news of a tentative agreement between the United Auto Workers and GM. The somewhat dovish comments from the FOMC after their policy meeting mid-week also appeared to strongly propel sentiment for several days, as chances for a December hike appear to remain low. Friday’s weaker jobs report also provided some reassurance that labor markets might be cooling, also lessening the chances of further tightening needs. There appeared to be high volume from larger firms as well, including tax loss trades before the common Oct. 31 fiscal year end. 

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Economic Update 10-30-2023 

  • Economic data for the week included U.S. GDP growth for Q3 coming in over double that of the prior quarter. Durable goods orders also came better than expectations. In housing, new home and pending home sales both exceeded estimates. 
  • Equities fell back as several growth metrics led investors to assume continued higher interest rate policy. Bonds fared positively as yields actually fell back. Commodities were mixed with a small decline in crude oil offset by a spike in natural gas. 

U.S. stocks fell most of last week, ending in the negative, with mixed corporate earnings reports and continued worries about potentially higher interest rates. The robust GDP report also poured cold water on sentiment, as this raises the chances of the Fed either raising rates further or pausing for longer, and certainly reduces the odds of rate cuts any time soon. It’s safe to say that the Fed funds situation continues to outweigh any other market factors. Despite the long-awaited election of a Speaker of the House, odds of a government shutdown after Nov. 17 remain high, as there is little common ground between the parties. However, another temporary extension remains in the cards as well, buying a few more months. 

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Economic Update 10-17-2023 

  • Economic data for the week included producer price inflation decelerating further on a year-over-year basis, while consumer prices remained somewhat sticky. Consumer sentiment also fell back, with higher inflation expectations. 
  • Equities rose in the U.S. but were little changed overall in foreign markets. Bonds fared positively, as interest rates came back down from highs as investors sought a bit of safety. Commodities rose due to higher prices for crude oil and gold, related to geopolitical concerns in Israel and the Middle East. 

U.S. stocks began on a weak note, as the prior weekend’s Israeli/Gaza conflict brought up worries of greater regional instability (potentially including Iran), which has the potential of pressuring oil prices even higher. An escalation appeared to be passing financial threat, while a little-changed CPI report proved frustrating for stocks, although the S&P ended the week positively. Sectors were led by a sharp over-4% rise in energy, as well as utilities as interest rates fell back a bit; consumer discretionary, communications, and materials lagged with small declines. 

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Economic Update 10-11-2023 

  • Economic data for the week included ISM manufacturing staying in contraction, but continuing to improve, while ISM services slowed a bit, but continued to expand at a rapid clip. The employment situation report surprised to the upside, as did job openings earlier in the week. 
  • Global equities were mixed, with net gains in U.S. large cap, while small cap and international stocks declined. Bonds also fell back again due to interest rates inching higher. Commodities declined as crude oil prices pulled back sharply. 

U.S. stocks ended positively, despite starting weaker, due to Fed comments continued to allude to ‘higher for longer,’ in respect to policy interest rates. This was in addition to decent economic data earlier in the week, such as the ISM reports and JOLTs. Rep. McCarthy was removed as Speaker of the House, which doesn’t bring any immediate impacts, but alludes to the trickle-down effect of rising chances for a government shutdown in mid-November when the temporary stopgap bill runs out. To end the week, Friday’s surprisingly strong employment situation report reversed prices back into the negative before recovering. This represented more ‘good news is bad news’ in the vein that a continued strong labor market provides the Fed with even more cover for their higher-for-longer narrative. Going into the new week, conflict in Israel over the weekend is expected to add to near-term volatility, as oil prices have often been affected by instability in that region. 

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Economic Update 9-18-2023 

  • Economic data for the week included mixed producer and consumer inflation results, with headline numbers driven by higher energy costs. Retail sales, industrial production, and regional manufacturing results showed gains for the prior. 
  • Equities ended with flattish returns in the U.S., underperforming foreign stocks, which saw gains. Bonds fell back along with higher interest rates across the yield curve. Commodities gained last week, led by continued supply concerns in crude oil. 

U.S. stocks ended flattish on the week, with sectors mixed, seeing gains in utilities, consumer discretionary (solely due to gains in Tesla), and financials. Technology was the sole decliner of several percent, with some degree of disappointment about Apple’s annual fall product event last week. Real estate ticked slightly higher, despite a rise in interest rates. Stocks closed the week on a sourer note, as data from China came in more positively, weakening the case for additional stimulus there that markets had hoped for. The U.S. auto worker strike also began, being the first time where all three domestic automakers were targeted in a century, which economists have predicted could negatively affect spending and GDP growth if it continues for an extended period. At the same time, decent economic data and rising energy prices as of late threatens another Fed rate hike—even if not for this coming week’s meeting (as futures markets point to overwhelming odds of no change).