Market Update – February 26th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

February 26th, 2024

Financial Markets
The S&P 500 and Dow Jones closed at an all-time high on Friday following Nvidia’s robust earnings report on Wednesday. By close on Friday, February 23rd, the S&P 500 rose by +1.66%, the Nasdaq Composite by +1.4%, the Dow Jones Industrial Average by +1.3%, and the Barclays Aggregate Bond Index by +0.25% for the week.

Market News
Leading Indicators. January’s Leading Economic Index (LEI) fell -0.4% month over month, surpassing economists’ expectations to the downside. On the contrary, for the first time in two years, six out of the ten components were positive over the last six months. Those positive leading indicators include the S&P 500, weekly initial claims, the Leading Credit Index, building permits, new orders of nondefense capital goods, and new orders of consumer goods and material.

On the other hand, negative factors encompassed interest rate spreads, average consumer expectations, the ISM Index of New Orders, and average weekly manufacturing hours. Overall, although leading indicators continue to point to a bearish scenario ahead, the pace of the LEI’s decline has slowed in recent months.

Nvidia Earnings. Shares of NVDA soared more than +16% on Thursday following NVDA’s after-close earnings call on Wednesday, pushing the S&P 500 more than 2% on the day. The chipmaker and AI leader posted better than expected results on both their top and bottom lines for their fiscal Q4, showing +265% year on year revenue growth, while net income surged by +769% from a year ago. Nvidia continues to set itself ahead of technology companies with incredible products and financial results, and this quarter’s earnings were a microcosm of the success Nvidia has seen in recent years.

See below NVDA’s nearly +60% year to date gains:

Existing Home Sales. January existing home sales posted in line with expectations, with homes sold totaling 4 million in the month. This was a rise of +3.1% from December, but a drop of -1.7% from a year ago by volume. Regionally, results varied largely, as sales improved in the West, but fell in the Northeast, Midwest, and South compared to a year ago. Inventory rose slightly from a year ago to 3 months’ worth of inventory. Finally, the median sales price rose +5.1% from a year ago, a notable move given the higher interest rate environment compared to a year prior.

Amazon to join the Dow Jones Industrial Average. On Monday, February 26th’s market open, Amazon joined the Dow Jones Industrial Average, replacing Walgreens, as ecommerce and technology services solidify their prominence in major indexes. Because the Dow is a price weighted index, Amazon will rank as the 17th stock of the 30 stocks that make up the index, joining other technology companies like Apple and Microsoft. To be considered for the Dow Jones Industrial Average, the company must be an S&P 500 member and account for a significant portion of economic activities in the US, therefore as the largest e-commerce player in the US, it seems appropriate that Amazon would join the group.

Where’s the Cut? As economic data continues to demonstrate a robust labor market, investors are continuing to wonder when the Federal Reserve will cut rates. In all recent measures, inflation persists below the Federal Funds rate, placing real rates in the positive for the first time in quite a while. Pair with this a Fed that’s rolling securities off their balance sheet to reign in the money supply, a rate cut should theoretically come soon. Presently, markets are pricing in a 23.5% chance of a rate cut in May and a 67.5% chance of a rate cut by or during the June FOMC meeting. Deviations from these expectations have the potential to impact both the economy and markets in a material way.

Source: University of Michigan

The S&P 500 and Dow Jones closed at record highs last Friday, ushered in by Nvidia’s impressive earnings report, while economic indicators such as January’s Leading Economic Index reflected a bearish tone ahead and existing home sales demonstrate a slower, more historically normal market. Additionally, Amazon has officially joined the Dow Jones Industrial Average, marking a notable accomplishment for the ecommerce giant. Panning back and looking holistically at the state of the US economy and the Fed’s potential next steps, investors are expecting a rate cut by the June FOMC meeting.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,

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.

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