What’s Up In The Market
Week Ending February 23, 2024
Weekly Market Summary
Global Equities: Earnings continued to deliver, helping propel markets higher in weekly trading. The S&P 500 gained 1.7% during the week, the Nasdaq was up 1.4%, and the Dow Jones Industrial Average finished up 0.7%. Small Caps lagged Large Caps with a -0.9% return. Developed International stocks were also up, gaining 1.8% during the week, along with Emerging Markets, which gained 1.3%.
Fixed Income: 10-Year Treasury Yields rose to a three-month high above 4.3% during the week but eased Friday to finish relatively unchanged at 4.25%. 3-Month Treasury Bill yields ticked up to 5.4%, the highest level since December 12, 2023. High yield bonds rose during weekly trading, advancing 0.6%.
Commodities: Oil prices were lower during weekly trading as data on US inventories revealed a fourth consecutive weekly increase. US benchmark West Texas Intermediate ended the week at $76.50. Natural gas prices, which had been in freefall since the start of February, jumped over 12% after Chesapeake Energy (CHK) announced production cuts. The move was the largest one-day jump since July 2022.
Weekly Economic Summary
FOMC Minutes: Fed minutes were something of an afterthought, overshadowed by Nvidia (NVDA) earnings released the same day. Nevertheless, the January minutes revealed that the Fed is more concerned with the risk of cutting too early than potentially delaying too long. Markets didn’t move much on the release of the minutes, and one could interpret the statement in one of two ways – either that inflation is persistent and the Fed can’t risk a backslide, or that the economy is so good that it can withstand delayed rate cuts. The next inflation reading will be the Personal Consumption Expenditure Index, to be released on February 29th.
Housing Update: Shelter inflation continues to be a sticky problem for the Fed, as the supply-demand imbalance of homes for sale has kept prices high despite elevated mortgage rates. Roughly 65% of homeowners have mortgages locked in below 4%, and with the going rate on a 30-year mortgage presently above 7%, those homeowners aren’t in any rush to move. Mortgage demand dropped 10.6% during the week, but sales of existing homes slightly surprised to the upside at 4 million homes, a 3.1% monthly increase. Builders of new homes have had no problem moving inventory due to the scarcity of existing homes for sale. Toll Brothers (TOL) posted strong earnings and heavy demand heading into the spring buying season, sending shares nearly 9% higher for the week.
Earnings Season Update: Investors have been nervously awaiting Nvidia (NVDA) Q4 results since the start of earnings season, and the chipmaker delivered blowout results once again. Revenue more than tripled from a year earlier, and profit increased nine-fold. Incredibly, this was accomplished with a reduction in Chinese revenue from 20% to “mid-single digits” due to US restrictions. Shares were up 16.4% and the euphoria spilled over to the broader market as investors betting on the Artificial Intelligence revolution were vindicated.
Chart of the Week
The Chart of the Week shows the year-to-date change in probability of a March interest rate cut. After a string of good inflation and economic data, rate hike expectations jumped to nearly 40% for March. However, following hotter than expected Consumer and Producer Price Index reports and hawkish rhetoric from the Fed, the timeline has been pushed back to the second half of 2024. Markets are taking the delayed rate cuts in stride, however, as corporate earnings and positive outlooks have propelled the market to new highs.
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