Market Update – January 21st, 2024

Financial Markets

Ahead of yesterday’s presidential inauguration, markets were buoyed last week by falling yields and a softer-than-expected core CPI report, which helped lift investor sentiment. As of close on Friday, January 17th, the Dow Jones Industrial Average climbed 3.69%, the S&P 500 advanced 2.91%, and the Nasdaq Composite gained 2.45%. Even bonds participated in the rally, with the Barclays Aggregate Bond Index rising 1% for the week.

Source: Zacks

Market News

December CPI. The December Consumer Price Index showed mixed results, although the market perceived it as a positive update, with headline inflation rising 2.9% year-over-year, up from November’s 2.7%, and core inflation increasing by 3.2%, less than expected. On a monthly basis, headline inflation was up 0.4%, while core inflation rose 0.2%.

While headline CPI was pushed higher by categories like gas utilities (+4.9% YoY), transportation services (+7.3% YoY), and shelter (+4.6% YoY), the smallest year-over-year increase in shelter prices since January 2022 suggests some easing.

Other categories, such as used vehicle prices (-3.3% YoY) and broader grocery inflation (+1.8% YoY), helped offset higher costs in certain areas, like eggs, which soared 36.8% from a year ago due to supply constraints from avian flu. Overall, markets viewed the report positively, as the softer-than-expected core CPI and signs of improvement in key areas point to easing inflationary pressures, despite headline inflation creeping closer to 3%.

Source: Bureau of Labor Statistics

December PPI

The December Producer Price Index came in lighter than expected, showing a 3.3% increase year-over-year on both headline and core measures. Energy prices played a significant role in driving the PPI higher, with energy costs rising 3.5% month-over-month. Services showed little change, rising 0% month-over-month, though transportation and warehousing services saw a notable 2.2% monthly increase, largely attributable to higher energy prices.

Overall, the PPI report reflected another month of stabilized inflation, however it remains above the Fed’s 2% target, which may lead the Federal Reserve to hold rates higher for longer.

Source: Bureau of Labor Statistics

Retail Sales

December’s retail sales came in below expectations, rising 0.4% for the month compared to the anticipated 0.7%. On an annual basis, retail sales increased by 3.9%, reflecting steady, albeit slower, consumer spending in a holiday month. Auto was a positive contributor to the growth, including motor vehicle and parts sales, which rose 8.4% year-over-year increase. Non-store retailers, driven largely by online shopping, rose 6.0% year-over-year. While the numbers show a decent month of growth, the lower-than-expected results suggest some softening in consumer activity during the holiday season.

Housing Starts

The residential real estate market showed mixed signals in December as housing starts rose 15.8% month-over-month but remained 4.4% lower than December 2023. Permits, a leading indicator of future construction, declined 3.1% year-over-year, while housing completions fell 0.8% compared to December 2023. Despite the monthly rebound in starts, 2024 proved to be the weakest year for housing starts in the past five years, underscoring the ongoing challenges in new housing supply.

Bank Earnings

Bank stocks climbed last week as the largest U.S. banks delivered stronger-than-expected Q4 earnings. JPMorgan Chase, the largest US bank, reported earnings of $4.81 per share, significantly exceeding the anticipated $4.03. Bank of America also outperformed earnings estimates, driven by better-than-expected results in investment banking and interest income.

Citigroup reported the highest year-over-year earnings growth among major banks, while Wells Fargo also beat expectations, posting 6% year-over-year earnings growth. As the banking sector traditionally leads off earnings season, these results highlight the strength of the U.S. economy and could serve as a positive indicator for the remainder of Q4 earnings.

Source: Morningstar

Summary

Markets found encouragement last week as falling yields and softer-than-expected core inflation lifted sentiment. December’s CPI and PPI reports showed inflation easing in several key areas, supporting hopes for stable prices, though inflation remains above the Federal Reserve’s 2% target. Retail sales and housing data painted a mixed picture, with retail sales rising 0.4% in December, below expectations, and housing starts rebounding 15.8% month-over-month but remaining weak on an annual basis. Meanwhile, the banking sector kicked off Q4 earnings season on a strong note, with major U.S. banks like JPMorgan and Bank of America exceeding expectations, signaling economic resilience and optimism for the broader earnings season ahead.

In closing, we want to express our sincere gratitude to our valued readers and loyal customers for entrusting us with your financial well-being. Your continued support is the cornerstone of our success, and we are committed to serving you with the utmost dedication and professionalism. As we navigate the ever-changing financial landscape together, we encourage you to reach out to us if there have been any shifts in your risk tolerance or if you have experienced any material changes in your Investment Policy Statement objectives or constraints. Your financial goals are our top priority, and we are here to adapt and tailor our strategies to align with your evolving needs, whether they pertain to risk and return objectives or constraints such as time horizon, taxes, liquidity needs, legal issues, unique circumstances, or changes in your financial planning and retirement objectives. Your feedback and communication are essential in helping us ensure your financial success. We look forward to continuing this journey together.

We appreciate your continued trust.

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.

Content is used with the permission of Synergy Asset Management. This information is being provided to you as it has been determined by SPG Advisors LLC to be suitable in relation to your portfolio, needs, objectives, and other considerations. SPG Advisors, LLC and Synergy Asset Management are affiliated. All such information is provided solely for convenience, educational, and informational purposes only. Past performance does not guarantee future results. All investing comes with risk, including risk of loss. No investment strategy can guarantee a profit or protect against loss in periods of declining values. All rights reserved. No part of this publication may be reproduced, distributed or transmitted in any form without the prior written permission of the publisher.

More Market Updates