ND&S Weekly Commentary 1.16.24 – Mixed Bag on Inflation

Equity markets clawed back some of the previous week’s losses, leaving equities mixed on the year. Market activity during the week was largely driven by inflation data as markets nervously wait on earnings season to begin.

For the week, the DJIA added 0.35% while the S&P 500 gained 1.87%. The tech-heavy Nasdaq was up 3.09%. International markets were mixed with the MSCI EAFE Index (developed countries) up 0.87% and emerging market equities (MSCI EM) giving back 0.57%. Small company stocks, represented by the Russell 2000, were flat. Fixed income, represented by the Bloomberg Aggregate, jumped 0.92% for the week as yields retreated. As a result, the 10 YR US Treasury closed at a yield of 3.96% (down ~ 9 bps from the previous week’s closing yield of ~4.05%). Gold prices also rose to $2,056/oz – flat on the week. Oil prices slid during the week closing at $71.91per barrel – down roughly 1%.

Major economic news centered on inflation last week. The December inflation data painted a mixed picture as the CPI Index came in higher-than-expected with a m/m increase of 0.3% (3.4% y/y). Friday’s Producer Price Index (PPI) was a bit of welcome news for those angling for the Fed to cut rates as it came in lower than expected with a 0.1% monthly decline (… still 3.9% y/y). Voting members at the Federal Reserve have been a bit hawkish in recent public remarks as the market expectations are predicting 5 to 6 cuts in 2024 … this seems unrealistic unless we have a severe slowdown.

Last week saw the beginning of the corporate earnings season which was headlined by mixed results from JP Morgan and Bank Of America, and disappointing results from United Health. Fourth quarter earnings for the S&P 500 are expected to decline 6% compared to Q3 while sales are expected to grow roughly 2.5% (y/y). As we look at expectations for 2024, the S&P 500 is trading at nearly 20-times the expected earnings of $244.39 for the S&P 500. That figure is predicated on earnings growing 11.4% for 2024 which would seem like a high bar. As a result, we enter 2024 with a slight-defensive bias within portfolios but are looking for opportunities as they present themselves.

“Out of a mountain of despair, a stone of hope.”Martin Luther King Jr.