Market Recap – February 16, 2024

Summary:

  • Weekly Returns (Friday Open – Thursday Close) & YTD Returns*: [1]

US stocks had another positive week despite volatility as Q4 earnings were generally better than expectations despite worries of inflation returning.  US bonds were down as rates increased due to higher-than-expected inflation numbers.  International stocks as Chinese and Indian equities rallied.

  • Hot Inflation: CPI reported a 3.1% year-over-year increase versus the 2.9% expected. Core CPI reported a 3.9% increase versus the 3.7% expected.  Import prices reported a 0.8% increase versus the -0.1% expected.  Finally, PPI and core PPI reported a 0.9% increase and 2.0% increase versus the consensus forecasts of 0.6% and 1.6%. [2]
  • Rate Cuts: At the beginning of the year, options markets were pricing in 7 rate cuts of 25bps each by the end of 2024.  Since then, a hawkish Fed meeting and signs of inflation being more stubborn than expected have changed expectations to 3.5 rate cuts of 25bps by the end of 2024.  Equity markets have rallied despite this due to the strength of earnings and the resiliency of the labor market.  [3]
  • Lyft’s $2 Billion Typo: Lyft was forced to issue a correction to a press release announcing that the 2024 earnings margin outlook was expected to by 5% instead of the accurate number of 0.5%. The extra zero led to a rapid 67% surge in the stock price that quickly reversed once the correction was made.  Lyft’s CEO David Risher took ownership of the mistake. [4]

Chart of the Week:

Source: Capriole, Charles Edwards

Economic Outlook:

  • Geopolitics: We expect the tensions in the Middle East to continue to boil over. These military conflicts pose a consistent risk to shipping which have been shown by research to have spillover effects into inflation.  Freight rate costs have almost quadrupled in price since November 30th. [5]
  • Inflation: We expect a second, less severe, round of inflation to begin in 2024. We see inflation being consistently above the Fed’s target of 2% in the coming years, range bound between 3-5%, with cyclical bouts of falling to target when unemployment increases.
  • Short-Term Interest Rates: We put the odds of any rate cuts in the first half of 2024 at less than 25%. Inflation is already showing signs of reaccelerating and the Fed’s rate cutting window is getting narrower by the day.
  • Long-Term Interest Rates: We expect longer-term interest rates to continue to stay elevated, which is consistent with our view that inflation will rebound in 2024. Most of all, we expect volatility in longer-term interest rates.  Longer-term interest rates have a high correlation to the combination of the growth in GDP and long-term inflation expectations.

*US Bond Market is Bloomberg Aggregate

*International Stocks is MSCI ACWI ex-US Index

*Weekly Returns is Feb 9th, 2024-Feb 15st, 2024

*YTD is Jan 2nd, 2024-Feb 15th, 2024

By: Nick Colletta, CFA, CAIA

Sources:

Bridge Advisory LLC Disclosures

Bridge Advisory, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Investment Advisory Services offered through Bridge Advisory, LLC. Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Information herein has been obtained from sources believed to be reliable, but Bridge Advisory, LLC. does not warrant its completeness or accuracy; opinions and estimates constitute our judgment as of this date and are subject to change without notice. This newsletter expresses the views of the authors as of the date indicated and such views are subject to change without notice.

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