Market Update – February 12th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

February 12th, 2024

Financial Markets
In a quieter but bullish week, the S&P 500 closed above 5,000 on Friday for the first time ever. As of close on Friday, February 9th, the Nasdaq Composite gained +2.31%, the S&P 500 gained +1.37%, the Dow Jones Industrial Average was nearly flat, and the Barclays Aggregate Bond Index fell –0.84% for the week.

Market News

ISM Services. January’s ISM Services Index exceeded expectations, registering at 53.4%, marking a notable increase of 2.9 percentage points from December’s figure. This month’s data extends the streak of positive readings (above 50%) to 13 consecutive months, showcasing the continual strength of the services industry. Since the pandemic, the service side of the economy has exhibited remarkable strength, driving the bulk of the high inflation we’ve seen in recent years, compared to the goods side of the economy. The service sector as a whole continues to be robust, showing little to no signs of an impending recession.

Source: The Conference Board

ISM Manufacturing. In January, the ISM Manufacturing Index showed a 2-percentage point nominal increase from December, reaching 49.1%. Despite this uptick in January, the index is still in contractionary territory and has been there for the past 15 consecutive months, unlike the ISM Services Index. Within the composite ISM Manufacturing Index, the New Orders Index moved into expansion territory at 52.5% in January, a significant improvement of 5.5 percentage points compared to December’s data. Despite January’s improvement, the manufacturing sector continues to exhibit sluggishness overall. To signal a genuine turnaround, sustained positive data with an ISM Manufacturing Index surpassing the 50% mark for a few months would be necessary, but presently, the data is far from that reality.

Source: The Conference Board

Consumer Credit. In the final consumer credit report of 2023, overall consumer credit rose by 2.4% over the year, with revolving credit, including credit cards and personal lines of credit, showing a notable increase of 8.4%, while nonrevolving credit, covering car loans, mortgages, and student loans, saw a more modest uptick of 0.4%. This contrasts sharply with the heightened borrowing witnessed in 2022 and could be attributed to many factors such as higher interest rates, evolving consumer demand, and uncertainties regarding future economic conditions.

Looking at solely the month of December, consumer credit came in much lower than expectations, only up 0.4% from a year prior, with revolving credit up 1% and nonrevolving credit up 0.2%, despite the holiday season and a strong month of consumer spending.

Source: Federal Reserve Board

Initial Claims. Following many announcements of layoffs since the new year, particularly in the technology sector, the January unemployment report demonstrated little softening in the labor market, sitting at a healthy 3.7% unemployment rate. Subsequently, higher frequency data, such as initial claims, has yet to show a soft labor market either. In the most recent initial claims report, for the week ending February 3rd, weekly claims clocked in at just 218,000, marking another week in a prolonged trend of low unemployment claims. From the data, the job market has proven resilient, even as we approach the two-year anniversary of the Fed’s start to this rate hiking cycle in March.

Source: Department of Labor

Disney Surprise. With more than half of the S&P 500 reporting earnings already, one company stood out this week as a turnaround story in their earnings report – Disney. Disney saw their FY 2024 Q1 EPS beat estimates by +17.8%, which was up +23.2% from a year ago, while sales were flat from a year ago. Beyond a strong quarter of earnings, Disney announced many initiatives aimed at rewarding shareholders and expanding their product offerings. Starting in July, Disney’s semiannual dividend will increase 50% to $0.45 per share. This follows a few years of a dividend suspension, from January of 2020 until Disney’s recent dividend reinstatement in December 2023. On top of that, Disney announced a $3 billion share buyback plan for their fiscal year 2024.

Bob Iger, Disney’s CEO also announced a slew of new product offerings aimed at attracting younger generations. They plan to launch a new ESPN sports streaming service in Fall of 2024, alongside a partnership with Fox and Warner Brothers to create a streaming bundle. Additionally, Disney+ will be the exclusive streaming service with Taylor Swift’s Eras Tour documentary starting in March, they will be launching a sequel to the movie Moana this fall, and they are partnering with Epic Games (operator of Fortnite) to expand their mobile game offerings. All of this positive news sent the stock up last week, amounting to an impressive year to date gain of +22.4% (as of Thursday, February 8th).

Summary
Last week the S&P 500 broke through the 5,000 level for the first time ever on Friday, as economic data demonstrated the mixed dynamics of the macro landscape. The ISM Services Index continued to show strength in the service sector of the economy, while the ISM Manufacturing Index continued to show weakness in the manufacturing sector. Additionally, the final consumer credit report of 2023 for the month of December showed lower than expected use of credit, particularly in terms of credit cards and revolving lines of credit. Unemployment claims continue to reign in light despite news of layoffs and Disney rallied last week on a strong earnings report and renewed prioritization of shareholder friendliness.

Thank you,
Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.