Market Update – January 27th, 2024

Financial Markets

Last week, economic data was relatively quiet, with attention focused on President Trump’s inauguration, his series of executive orders, and the continuation of Q4 earnings season. The S&P 500 reached new all-time highs, and major indices posted gains. As of close Friday, January 24th, the Dow Jones Industrial Average rose by 2.15%, the S&P 500 gained 1.74%, the Nasdaq Composite increased by 1.65%, and the Barclays Aggregate Bond Index was relatively flat, inching up by 0.09% in the week.

Source: Zacks

Market News

AI Concerns. Technology stocks are falling sharply this Monday as investors react to the weekend rollout of China’s DeepSeek AI platform, a free, open-source large language model that was first launched in late December. DeepSeek claims the model was developed in just two months at a cost of under $6 million—dramatically lower than the investments made by U.S. tech giants.

This development has sparked concerns over the competitiveness of U.S. companies in AI and the potential erosion of America’s lead in the sector. With tech valuations already elevated due to high expectations for AI-driven growth, this news underscores the critical importance of the upcoming earnings season. Disappointing results could intensify fears that the U.S. is falling behind in the global AI race.

Source: CNBC

Q4 Earnings

With nearly 20% of the S&P 500 companies having reported, Q4 and full-year 2024 earnings have exceeded expectations overall. In the financial sector, just over a third of companies have reported, showcasing extremely strong earnings growth—over 100% year-over-year EPS growth—driven primarily by increased deal-making revenue.

Across the S&P 500 as a whole, companies that have reported earnings have posted 47.8% YoY earnings growth, heavily influenced by the exceptional performance of banks. Analysts project that the remaining 80% of the index will deliver more modest year-over-year earnings growth of around 6.4%, resulting in a blended EPS growth rate of around 13% YoY.

Source: FundStrat, FactSet

Leading Indicators

The Conference Board’s Leading Economic Index (LEI) fell slightly in December, falling by -0.1% from November. Over the second half of 2024, the LEI fell by -1.3%, an improvement compared to its steeper -1.7% decline in the first half of the year.

Within the LEI, positive contributions came from improved credit conditions, gains in the S&P 500, and an increase in weekly manufacturing hours. These positive factors were offset by weaker consumer expectations for business conditions, a decline in new orders, and a slight rise in initial unemployment claims.

While the LEI remains a bearish indicator, it has improved in recent months. Previously a recessionary warning signal, it now suggests a slowdown rather than a full-blown recession.

Source: The Conference Board

Recession Indicators

As January comes to a close later this week, economic indicators have shown slight improvement this year so far, with our recession dashboard now reflecting 5 bullish and 3 bearish indicators. The ADS Index, a high-frequency measure of business conditions including factors like jobless claims and trade sales, turned positive in recent weeks. Additionally, while the LEI remains bearish, it is notably less so compared to a few months ago. Overall, economic data this month has been largely stable or modestly improved, suggesting a resilient economic environment based on current data.

Existing Home Sales

Existing-home sales rose by 2.2% in December to a seasonally adjusted annual rate of 4.24 million, marking the strongest pace since February 2024 and a 9.3% increase compared to December 2023. The median sales price ended the year at $404,000, up 6% year-over-year. Inventory edged up slightly to 3.3 months’ worth. For 2024 as a whole, total existing-home sales reached 4.06 million, reflecting the lowest sales volume since 1995, highlighting the pressure high rates and high prices have had on the market in the last year.

Source: National Association of Realtors

Summary

Last week, economic data was subdued as attention shifted to President Trump’s inauguration, executive orders, and Q4 earnings season, with the S&P 500 reaching new all-time highs. Over the weekend and bleeding into today’s market open, concerns arose over China’s DeepSeek AI platform, sparking fears about U.S. competitiveness in AI, while Q4 earnings showed strong growth, particularly in the financial sector. Despite some concerns from the Conference Board’s Leading Economic Index and recession indicators, economic data in January reflected slight improvement, suggesting resilience in the US economy.

We appreciate your continued trust.

Thank you,

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

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