Market Recap – February 23, 2024

Summary:

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

US large cap stocks had another positive week led by Nvidia’s stellar earnings.  Interest rate sensitive small cap stocks and US bonds struggled as longer-term interest rates rose.  International stocks rallied into positive territory for the year as Chinese interest rate cuts spurred their markets.

  • US-Russian Sanctions: The United States has levied a new round of sanctions against Russian individuals and assets to mark the second-year anniversary of Russia’s invasion of Ukraine and to retaliate for the death of Russian opposition leader Alexei Navalny. [2]
  • Nvidia Earnings: Nvidia surpassed their revenue and earnings expectations off the tailwinds of the artificial intelligence craze.  Their revenue came in at $22.1B versus the $20.62B expected, which was a 265.3% increase year-on-year.  Their GAAP EPS was $4.93 per share, up a staggering 765% from a year ago. [3]
  • Dow Jones Industrial Average Change: Amazon.com Inc. is set to replace Walgreens Boots Alliance in the Dow Jones Industrial Average Index.  Meanwhile, Uber Technologies is set to replace JetBlue Airways Corp. in the Dow Jones Transportation Average.  Both changes are set to take place on February 26th before the market opens. [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 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, structurally 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 Small Cap Stocks is Russell 2000

* US Bond Market is Bloomberg Aggregate

*International Stocks is MSCI ACWI ex-US Index

*Weekly Returns is Feb 15th, 2024-Feb 22nd, 2024

*YTD is Jan 2nd, 2024-Feb 22nd, 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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