Market Perspective for January 28, 2024

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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