February 5th, 2024
In the face of consistently improving economic data, and the promise of at least 3 interest rate cuts in 2024, the market has found its way into new territory – claiming new market highs every week this year.
The only negative commentary I hear seems to be coming from those stuck on old economic data, intrenched in a particular political narrative, or folks who simply have something to gain by selling you their pessimism. However, by and large, there is so much to be optimistic about, as you’ll read about below – GPD crushing estimates, unemployment remaining at historic lows, corporate earnings continuing to dominate, and inflation now under the Fed’s desired 2% target.
Despite the market’s excitement for a March interest rate cut Fed Chair, Jerome Powell, was adamant at last week’s FOMC meeting, hawkishly reiterating that rate cuts will emerge in the latter half of the year. Many economists and market pundits have speculated that we’d see cuts in March due to the continually improving inflation data. However, with GDP, jobs data and corporate earnings reporting with such positive markers, it’s hard to justify the concern that ‘the current level where rates reside will cause a recession’. I continue to have the stance that we will not see a rate cut before September, but I would happily be proven wrong.
And now, your Monthly Market & Economic Update by the numbers.
Warmly,
Mark S Sauer
Market Update
Global Equities: January saw some ups and downs but each week resulting in new highs for much of the board market. The S&P 500 grew 1.09% in January, the Nasdaq up 1.31%, but the big winner for large-caps was the Dow Jones Industrial Average up 1.55%. Much excitement around small caps to start the year, but the Russell 2000 disappointed as it was down -3.27% to start the year. Developed International markets were mostly flat, down just -0.13%, while Emerging Market’s continued to struggle -2.68%.
Economic Update
GDP Blows Away Expectations: Fourth Quarter GDP was shockingly strong at 3.3%, crushing economists’ expectations of a 2.0% increase and even exceeding the Fed’s own model which predicted a 2.4% growth rate. Consumer spending remained the driving force behind the economic growth, as has been the case all year. Following Q3’s blowout 4.9%, GDP growth for 2023 averaged 3.1%, defying economist predictions for a recession. The economic strength looks poised to continue into 2024 as well, as the Atlanta Fed released its initial Q1 2024 projection for 3.0% GDP growth.
Charts of the Month
Core PCE
Our first chart of the month shows the three and six-month trend in Core PCE. Looking at the quarterly and semi-annual trends removes some of the “noise” from the data by isolating the most recent, and therefore more relevant, inflation readings. The three and six-month data shows that present inflation is now below the Fed’s 2% target. Given this chart, it’s hard to imagine that the Fed would push out rate cuts to the latter half of 2024.
GDP Strong
Our next chart is the Atlanta Fed’s initial estimate for first quarter 2024 GDP, compared with the Blue Chip consensus estimate from private market forecasters. Following 2023’s unexpectedly strong second half GDP growth, the Atlanta Fed’s model is currently projecting another extremely strong quarter. This model is updated regularly as data is released, so it may be revised down, but the initial estimate shows that the US economy is nowhere near a recession.
March Rate Cut Potential
Rate cut predictions have been all over the place, with folks near certain that we’d see a cut in March it’s clearer than ever than March will not be the month. CME FedWatch Tool showing us that as of today – 2/5/2024 – the exceptions for a March rate cut is now less than 20%.
