The markets continue to push higher setting new all time high records. This upcoming week will be very important with key earnings and the Feds announcing their thinking going forward.
WEEKLY SOUND BITES:
US indexes ended mostly higher bringing the Dow and the S&P 500 Index to new all-time highs and marking the 12th weekly advance out of the last 13 for the latter. The gains were relatively broad, although the small-cap Russell 2000 Index remained nearly 20% below its all-time intraday high. Investors focused on the poor earnings performance of TSLA while applauding the gains in NFLX.
The week’s economic calendar was also relatively light at the beginning but included some prominent surprises as the week progressed. The S&P Global flash manufacturing index jumping back into expansion territory—if barely—for the first time since April 2023 and reaching its highest level (50.3) since October 2022. S&P Global’ s Services index also beat expectations and hit its best level (52.9) since June. US GDP came in at 3.3%, well above consensus expectations of around 2.0%. Over the past year, the economy grew 2.5%, up from the 1.9% pace in 2022. The core personal consumption expenditure (PCE) price index, the Fed’s preferred inflation gauge, rose 2.0% in the fourth quarter over the year before—right in line with expectations and the Fed’s long-term target. Personal spending, reported on Friday, rose 0.7% in December, also beating expectations. An upside surprise in weekly jobless claims on Thursday helped balance out some of the strong economic readings, leaving the benchmark 10-year U.S. Treasury note yield little changed for the week.
An un-inversion of the yield curve isn’t necessarily good news for equites. The markets have dropped in 3 of the 8 times over the past 44 years when the yield curve un-inverted after being inverted for at least 3 months, including 2 drops of 10% or more over the following 12 months. A slowdown usually occurs 9 months after the maximum yield curve inversion, which occurred in mid-2023, implying one could arrive shortly.
In Europe, the ECB kept its key interest rates unchanged at record highs and reiterated that monetary policy would stay at “sufficiently restrictive levels for as long as necessary” to bring inflation down to the 2% target. Eurozone business activity shrank for an eighth consecutive month in January but at a slower rate—a sign that the current economic downturn may be stabilizing. The Eurozone composite PMI—which combines activity in the manufacturing and services sectors—rose to 47.9 from 47.6 in December. And in the UK, business activity rose more than expected in January, suggesting that the economy could avoid a recession. The preliminary S&P Global composite PMI rose to 52.5, the highest level in seven months, from 52.1 in December.
Over in Japan, at its January 22–23 meeting, the BoJ maintained its key short-term interest rate target at -0.1% and indicated that it will continue with its yield curve control policy, which regards the upper bound of 1.0% for 10-year JGB yields as a reference in its market operations. The BoJ revised down its outlook for consumer inflation, forecasting that the core CPI will rise 2.4% year over year (y/y) in fiscal 2024, down from a 2.8% y/y forecast in October 2023.
Chinese equities advanced after Beijing stepped in with forceful measures to support the economy. The PBOC said it would cut its reserve ratio requirement by 50 bps for most banks on February 5, marking the central bank’s first cut in banks required reserves this year. The current real estate market is still very weak and creating a large drag in the overall Chinese markets.
Enjoy this Week’s Round-Up
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