Market Perspective for February 4, 2024

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.

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