February 3, 2024 Market Update

U.S. stocks rose for a fourth straight week as the S&P 500 Index continued to push further into record-high terrain.  The benchmark finished the trading week up 1.4%.  It is only February, and the S&P is already up 4% so far in 2024.

The bond market further reduced the estimated odds that the Federal Reserve will soon cut interest rates.   As a result, the 10-year Treasury yield, after falling most of the week, reversed course on Friday and closed above 4.0% again.  

The Labor Department reported on Friday that U.S. companies boosted payrolls in January by 353,000, the most in a year.  The unemployment rate was 3.7% and wages outpaced expectations, rising 4.5% in January from a year earlier.  The labor news was accompanied by positive earnings and sales news from Big Tech firms, and provided further evidence that the risk of a recession in the near term remains low at present.

Last week’s upbeat news builds on last week’s announcement that America’s gross domestic product (GDP) grew at an annualized 3.3% rate in 2024’s fourth quarter – sharply higher than economists predicted.  Better yet, core consumer prices (the Federal Reserve’s preferred inflation measure) rose 1.9% in December on a six-month annualized basis – below the Fed’s 2% inflation target.

Considering the foregoing, it comes as little surprise that members of the Federal Reserve’s Open Market’s Committee unanimously agreed on Wednesday to leave its key policy rate unchanged for the 4th consecutive time.  What did surprise investors was the conservative tone of the Committee’s comments following the meeting’s conclusion. 

In its post-meeting policy statement, the Committee members noted that they won’t cut interest rates until they have “greater confidence” that inflation will fall to 2%.  “I don't think it’s likely that the committee will reach [that] level of confidence” by its March meeting, Chairman Powell said at his post-meeting press conference.  Stocks fell sharply after the news, before rallying at the end of the week.

The stock market’s gyrations last week suggests that the biggest threat to the current bull market is a major policy blunder by the Fed (which I believe has done as solid job as of late).   Absent that, I don’t see a readily apparent and immediate threat to the current stock market rally.  But something unexpected, such as a major expansion of the hostilities in the Middle East, could change the positive outlook in a heartbeat.  

That’s all for now.  Have a great weekend and invest wisely my friends.