Market Recap – February 2, 2024

Summary:

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

The Dow Jones took the lead in positive territory, buoyed by falling interest rates, while the S&P 500 remained flat, and the NASDAQ declined.  This decline was due to some mega-cap tech companies’ earnings failing to meet their high valuations—though this trend reversed on Friday morning with gains from Meta and Amazon.  The US bond market also saw gains, as concerns over commercial real estate-related banking issues overshadowed the Federal Reserve’s decision to maintain higher interest rates for an extended period. Meanwhile, international stocks were up, with a notable performance from Novo Nordisk, the maker of Ozempic, which reached a market cap of $500 billion.

  • Fed Decision: The Federal Reserve has chosen to maintain the federal funds rate at between 5.25% and 5.50%, effectively dismissing the prospect of a rate cut in March. They emphasized the need for more positive data, while acknowledging that the inflation data from the last six months has been favorable.  Consequently, markets are now anticipating the first rate cut to occur in May. [2]
  • Meta Earnings: Meta is experiencing its most remarkable day in a decade, with a surge of over 21% following the announcement of its earnings. The company exceeded both revenue and earnings estimates, initiated its first-ever dividend, and announced $50 billion in share buybacks. [3]
  • Employment Numbers: The non-farm payroll figures significantly outperformed expectations, with 353,000 jobs added compared to the anticipated 185,000. Contrary to expectations of an increase to 3.8%, the unemployment rate remained steady at 3.7%.  Additionally, there was a 0.6% rise in average hourly earnings, though this was partly attributed to a decrease in the average hours worked. [4]

Chart of the Week:

Economic Outlook:

  • Geopolitics: We expect the tensions in the Middle East to continue to boil over. These military conflicts pose a consist 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: Inflation showed some signs of picking up in December of 2023. We expect inflation to continue to cool a bit during Quarter 1 and then start to pick back up again due to geopolitical conflicts and government spending after that.
  • Short-Term Interest Rates: We expect the Federal Reserve to lower interest rates once or twice in 2024, beginning around May or June. However, this trend is likely to pause due to rising inflationary pressures. The increase in supply-side inflation is anticipated to restrict the Federal Reserve’s ability to reduce interest rates further. Additionally, a resurgence in the manufacturing sector is expected, which could lead to heightened price pressure on goods.
  • 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 the second half of 2024. Longer-term interest rates have a high correlation to the combination of the growth in GDP and long-term inflation expectations.

US Economic Health Scorecard (Internal Models):

  • Consumer Health: Strong – Trending Negative
  • Employment Health: Strong – Trending Slightly Negative
  • Fiscal Spending: Extremely Stimulative
  • Monetary Policy: Moderately Restrictive
  • Business Health: Strong – Trending Neutral
  • Lending Health: Weak – Trending Slightly Positive
  • Credit Conditions: Average – Trending Slightly Negative
  • Liquidity Conditions: Strong – Trending Positive

*US Bond Market is Bloomberg Aggregate

*International Stocks is MSCI ACWI ex-US Index

*Weekly Returns is Jan 26th, 2024-Feb 1st, 2024

*YTD is Jan 2nd, 2024-Feb 1st, 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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