The Investor Guide to Vanguard Funds for February is AVAILABLE NOW! Links to the February data files are posted below. Market Perspective: Expect Rates to be Higher for Longer Foreign […]
The first full week of February was a relatively quiet one in terms of news, but the information that did come out had a significant impact on markets. It will also likely have an impact on what the Fed decides to do in March and beyond in relation to interest rates. At the beginning of the week, there was chatter that a March rate cut was looking less likely, but a revision to a key January report might change that.
Last Sunday night, a 60 Minutes interview featuring Fed Chairman Jerome Powell revealed some key insight into his thinking. He said that there were likely to be three rate cuts in 2024 with the first one likely coming in May. During the interview, he also reiterated that the risk of a recession was still low and that the economy was still solid despite the rapid rise of interest rates over the past couple of years.
On Monday morning, the ISM Services PMI report was released and came in at 53 percent. This was higher than the 50.6 percent from last month and the analyst estimate of 52 percent prior to the release. This reading indicates that the service sector is still growing and may be a key part of economic stability and growth during the rest of the calendar year.
On Thursday morning, unemployment claims numbers were released and revealed that 218,000 people sought benefits during the previous seven days. This was lower than the estimated 221,000 claims and lower than the 227,000 claims made last week.
Although there were no scheduled news releases on Friday, an important revision was announced. It was reported that the December inflation report, which was released on Jan. 11, was revised downward from .3 percent to .2 percent on a monthly basis. The new figure was in line with what analysts had expected when the report was released.
The change will have a negligible impact on annual CPI figures, but it may help to calm the nerves of those who may have thought that the inflation fight wasn’t over. It is worth noting that November’s inflation report was revised upward from .1 percent to .2 percent on a monthly basis.
On Feb. 13, the January CPI report will be released, which is expected to confirm that inflation is moderating in the short-term and decelerating in the longer run. Analysts expect that monthly CPI will be .2 percent while yearly CPI will fall from 3.4 percent to 2.9 percent.
Markets had another up week as the Dow finished .35 percent higher to close at 38,671. On Monday, the Dow reached a low of 38,263 and made a high of 38,727 on Wednesday.
The Nasdaq was up 2.45 percent this week to finish at 15,990, which is an all-time high for the index primarily comprised of tech stocks. It would make a low of 15,475 on Monday before rebounding, climbing the rest of the week and closing at its weekly high.
Finally, the S&P 500 finished the week up 1.49 percent to finish at 5,026. As with the Nasdaq, the S&P would make its weekly low of 4,919 on Monday before reversing, climbing and finishing at its weekly high.
In international news, Australia’s central bank decided to hold its interest rate steady at 4.35 percent. However, unlike in the United States, the Royal Bank of Australia (RBA) has warned that interest rates could still go higher if data warrants. On Wednesday night, it was revealed that the inflation rate fell .8 percent on an annualized basis while prices fell 2.5 percent on an annualized basis. On Friday, Canada’s central bank revealed that the unemployment rate there fell to 5.7 percent from 5.9 percent last month.
The CPI report will be released Wednesday. Retail sale data will be released on Thursday with the belief that sales fell by .2 percent over the past month. That would be a steep decline from a .6 percent increase in December. Friday sees the release of PPI data with the expectation that prices increased .1 percent on a month basis in January. Finally, the University of Michigan will release its consumer sentiment and inflation expectation reports on Friday.
The Investor Guide to Fidelity Funds for February 2024 is AVAILABLE NOW! February Data Files Are Posted Below Market Perspective: Interest Rate Expectations Drive Stocks Equities slowed their ascent in January […]
There was a lot of significant news released to start the month. The two most consequential pieces were the Federal Reserve’s rate decision on Wednesday and the January jobs report that was released on Friday morning.
The Fed decided to keep interest rates steady at a range of between 5.25 percent and 5.5 percent. Fed Chairman Powell said that while rate cuts were still likely this year, there is no timetable for them to happen. While many still believe that a rate cut could occur in March, there are some who believe that rate cuts could trigger a new wave of inflation.
Effectively, if rates were reduced, it would likely spur a new round of borrowing and spending as money would be less expensive to borrow. Ultimately, it could push prices back up before the inflation rates get back to 2 percent. Over the past several months, inflation in the United States has ranged between 3.1 percent and 3.5 percent.
In January, the economy added 353,000 new jobs, which was roughly double the 187,000 forecast prior to the release of the jobs report issued by the Bureau of Labor Statistics (BLS). The initial reaction was that this would be another sign that economic conditions are not sufficiently cool to warrant a rate cut soon.
However, this figure does vary widely from the employment report issued by ADP on Wednesday that found there were only 109,000 jobs added in January. Therefore, it’s possible that one or both reports are revised over the next several weeks.
Also on Friday, it was revealed that average hourly earnings were up .6 percent on a monthly basis and that the unemployment rate remained stable at 3.7 percent. An increase in wages may also put upward pressure on prices, which could make it harder to justify cutting rates in the first half of 2024.
On Tuesday, the Consumer Board (CB) Consumer Confidence Report was issued and came in at 114.8. This was significantly higher than the 108 reading from a month ago and was slightly higher than the 114.2 forecast before the report came out.
The University of Michigan also released its consumer confidence report on Friday, and it came in at 79, which also indicates that consumers feel fairly good about where the economy was headed.
All three major indices reacted strongly to the Fed and jobs reports news. The Dow was up over 500 points to close at 38,654 thanks to a strong push on Friday that accounted for over 240 points of that gain. On Monday, the market would make its weekly low at 38,071 before going into a trading range for the next several days. On Thursday, the Dow would retest the weekly low before rebounding and finishing near the high of the week on Friday.
The Nasdaq was up about 170 points this week thanks to a strong Friday session that saw the market gain almost 300 points on the day. On Wednesday, the Nasdaq made its weekly low of 15,183 before reversing and hitting a high of 15,650 on Friday afternoon.
Finally, the S&P 500 would finish the week about 1.5 percent higher to close at 4,958. Like the Nasdaq, the S&P would make its low of the week on Wednesday when it dipped to 4,850 before rebounding sharply on Friday to finish near the weekly high.
In international news, retail sales had dropped 2.7 percent over the past month in Australia while inflation in that nation had dropped to 3.4 percent on an annualized basis. In Canada, gross domestic product (GDP) was up .2 percent on a monthly basis while in Great Britain, the central bank decided to keep interest rates steady at 5.25 percent.
The upcoming week will be a relatively slow one in terms of news announcements in the United States. On Monday, the ISM Services PMI will be released while unemployment claims data will be released as usual on Thursday. Internationally, Australia’s central bank will be making an interest rate decision while Canada will be releasing employment change and unemployment rate data on Friday.
The final full week of January offered some important clues as to the strength of the economy. It also provided some context for what the Federal Reserve may do over the next several months. On Wednesday, the first impactful pieces of news was released with the Flash Manufacturing PMI and Flash Services PMI reports being released.
The Flash Manufacturing PMI came in at 50.3 percent, which was higher than the expected 47.6 percent. As for the Flash Services PMI, that report came in at 52.9 percent, which beat the expected 51.4 percent. Anything over 50 percent is considered a sign of an expanding market, which means that both the manufacturing and service sectors may experience growth in the first half of the year. If this is the case, it may indicate that the Fed will have to reconsider cutting rates as doing so in a strong economy could reignite inflation risks.
On Thursday, perhaps the most important data point of the week was released when the advance gross domestic product (GDP) for the previous quarter was made public. It was expected that the economy grew by 2 percent in the final months of 2023. However, the official report indicated that the economy actually grew by 3.3 percent during the period.
However, it was also revealed on Thursday that unemployment claims rose to 214,000 compared to 189,000 last week. Furthermore, prices of goods accounted for in GDP calculations only rose 1.5 percent compared to an expected 2.3 percent. This could be evidence of downward pressures on wages and prices of goods that might otherwise drive inflation higher.
On Friday, it was revealed that the Core PCE Price Index came in at .2 percent month-over-month in December, which was in line with expectations. Also on Friday, it was revealed that new home sales jumped by 8.3 percent compared to an expected 2.1 percent. This is important because demand for homes can lead to a rapid increase in prices, and housing costs have been one of the biggest hurdles to overcome in the quest to get inflation back to 2 percent.
The S&P 500 once again flirted with all-time highs as it finished the week at 4,890. For the week, the market was up .73 percent and is now up 2.45 percent for the year. On Wednesday, the S&P would make its high of the week at 4,903 while it would make a low of 4,844 on Tuesday morning.
The Dow would also finish the week higher, finishing up .45 percent at 38,109. On Wednesday afternoon, the market hit its weekly low of 37,816 before rebounding and closing at the high of the week. A rally that started on Thursday afternoon and lasted through Friday would account for almost all of the gains the market realized this week.
Finally, the Nasdaq would finish the week up .41 percent to close at 15,455. It would reach a high of 15,624 on Wednesday before easing back the rest of the week. The low of the week was hit on Tuesday when the Nasdaq dipped to 15,354.
In international news, the Bank of Japan (BOJ) held its interest rate steady at -.10 percent on Monday as inflation in the country cooled from 2.8 percent to 2.6 percent. The Bank of Canada (BOC) held that nation’s interest rate at 5 percent for the fourth straight meeting, which is seen by some as a sign that a rate cut may be forthcoming there too. On Thursday, the European Central Bank also kept the main refinancing rate at 4.5 percent.
The upcoming week will feature a couple of major reports as nonfarm payroll and unemployment numbers for January are expected to be released on Feb. 3. On Wednesday, the FOMC is scheduled to meet and release its upcoming rate decision. It is widely expected that the interest rate will remain in a range between 5.25 percent and 5.5 percent. Other important news include the CB Consumer Confidence Report and Job Openings and Labor Turnover Survey (JOLTS) that will be released on Tuesday.
Overseas, Australia will release its inflation figures for the previous month on Tuesday night. It is expected that the country’s inflation rate will have dipped from 4.3 percent to 3.7 percent on an annualized basis. In addition, Canada will release GDP numbers for the previous quarter while Great Britain will make another interest rate decision. As with most other developed nations, Great Britain is expected to hold rates steady.
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