Market Recap – January 26, 2024

Summary:

  • Weekly Returns* & YTD Returns*: [1]

The S&P 500 and other U.S. stock indices had large positive returns for the week, leaving them in positive territory year-to-date.  International stocks rebounded from their previous troubles after China announced a stimulus plan starting on Feb. 5th. [2] Bond prices remained flat this past week leaving them slightly negative year-to-date as the market takes in inflation data.

  • Gross Domestic Product: US fourth quarter GDP beat expectations, coming in at a sizzling 3.3% versus 2.0% expectations.  The better than anticipated growth was largely attributable to strong consumer spending on both goods (led by recreational goods/vehicles) and services (led by healthcare).  There were also increases in state/local government and federal government spending. [3]
  • Tesla Earnings: Tesla shares erased $80 billion in market value after missing earnings expectations and giving reduced future earnings guidance.  The stock suffered its worst day in 21 months and closed at its lowest level since December 2022. [4]
  • March 50/50 Decision: The Federal Reserve is eyeing lowering interest rates in 2024 as inflation has cooled.  Markets are currently pricing in a 50% chance of the Fed’s first rate cut coming in March which would signal a major shift in financial markets. [5]

Chart of the Week:

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. [6]
  • 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 anticipate that the Federal Reserve will reduce interest rates once or twice in 2024. However, this trend is expected to halt as inflationary pressures increase. The rise in supply-side inflation is likely to limit the extent to which the Federal Reserve can lower interest rates.
  • Long-Term Interest Rates: We expect longer-term interest rates to continue to rise, which is consistent with our view that inflation will rebound in 2024. 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 Jan 19th, 2024-Jan 25th, 2024

*YTD is Jan 2nd, 2024-Jan 25th, 2024

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.

By: Nick Colletta, CFA, CAIA

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