Market Update – January 30th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

January 30th, 2024

Financial Markets
In another bullish week, with gains driven by a better-than-expected GDP report, equities rose ahead of the January 31st FOMC meeting. As of close on Friday, January 26th, the S&P 500 rose +1.06%, the Nasdaq Composite rose +0.94%, the Dow Jones Industrial Average rose +0.65%, and the Barclays Aggregate Bond Index rose +0.05% for the week.

Market News:
Leading Indicators. December’s Leading Economic Index (LEI) unveiled a milder than expected -0.1% decline from November, contributing to a total six-month decrease of -2.9%. While this signals a slower decline compared to the previous half-year period, it remains a bearish indicator in our analysis of current market conditions.

Negative impacts on the LEI were driven by factors like lower average consumer expectations, a weak ISM Index of New Orders, and lower manufacturing weekly hours. On the other hand, the LEI found some support from positive stock prices, reflecting a 4.4% rally in the S&P 500 throughout December, and the persistently low unemployment rate, as evidenced by weekly initial claims data in this index.

While it is just one among the numerous economic indicators we routinely assess, considering the Leading Economic Index’s perspective, it would follow historical norms, if the US economy began to see an economic slowdown of some magnitude, as the index is near levels seen in the pandemic-related recession and the dotcom bust of the early 2000s.

Strong GDP Report. Real GDP in the fourth quarter of 2023 delivered a positive surprise this week, surpassing economists’ expectations with a growth rate of 3.3% (advance estimate) compared to projections near 2%. This unexpected strength in the fourth quarter is supportive of those advocating that the US economy is in a soft-landing scenario.

Recessions typically involve at least two consecutive quarters of real GDP decline, so being that the US just posted its sixth consecutive quarter of real GDP growth, it would require a significant shift from current economic levels for the US to see a recession. Contrary to the LEI and other bearish economic indicators, we view this positive surprise in GDP growth as a bullish factor in current market conditions – something that could push off the Fed’s first rate cut.

Durable Goods Orders. December’s Durable Goods Orders came in lighter than expected at no monthly change compared to November, versus expectations of growth near 1.5%. Despite the lack of month-to-month change, when new orders exclude the impacts of transportation, the increase amounted to a monthly gain of 0.6% – still less than the total growth that was expected. This comes as other indicators of the manufacturing industry as a whole paint a gloomy picture, such as the ISM manufacturing index.

December PCE Inflation. Annual PCE inflation clocked in at 2.6% and core PCE inflation at 2.9% in December, marking the final inflationary report of 2023. This also marks a 0.2% monthly increase in both headline and core PCE inflation, on pace with economists’ expectations. Following the trend of recent months, this was driven by inflation in services, which rose 0.3% in the month of December while goods prices as a whole fell -0.2% in the month.
 
Services seeing the greatest monthly increases include recreation services (up 0.9% MoM), housing and utilities (up 0.5% MoM), and financial services and insurance (up 0.5% MoM). We continue to be encouraged by disinflation in multiple inflationary indexes, but also recognize the delicate balance the Federal Reserve is aiming to achieve between price stability and maximum employment.

Personal Income, Spending, & Saving. Alongside the PCE report, we also got valuable economic data on consumers’ income, spending, and saving in the month of December. Disposable personal income, income available to consumers after taxes, increased by 0.3% in December compared to the prior month. Personal spending rose at an accelerated monthly rate of 0.7%, causing the personal savings rate to drop from November’s 4.1% to 3.7% in December. Future personal income and spending reports will be important to take note of as we evaluate December’s data as a holiday influx or as a longer-term trend.

Summary
In a week fueled by a robust GDP report, equities rose ahead of the January 31st FOMC meeting. The Leading Economic Index for December showed a modest -0.1% monthly decline, indicating a slower decrease but is still in bearish territory. On the other hand, a strong Q4 GDP report of 3.3% annual growth supports a soft-landing scenario. Durable Goods Orders for December saw no change, missing the expected growth. Annual PCE inflation was 2.6%, core PCE at 2.9%, driven mainly by services inflation. Furthermore, personal income rose by 0.3%, but personal spending rose by 0.7%, causing the personal savings rate to drop to 3.7% in December.

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.