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Financial Market Update – Week of 01/15

January 15, 2024

Major U.S. equity indexes traded higher last week as investors interpreted wholesale and consumer pricing inflation data for December.

Overall, for the week ending 01/12/24, the S&P 500 rose by 1.84%, the Nasdaq 100 increased by 3.23%, and the Dow Jones Industrial Average gained 0.34%.

Inflation Data Mixed, Well Received

CPI: December Consumer Price Index (CPI) data came in hotter than expected last Thursday, showing a 0.3% monthly increase in December and a 3.4% increase versus one year ago. Estimates were for gains of 0.2% monthly in December and a 3.2% gain year-over-year.

Shelter prices were the main culprit for higher prices, with prices showing a 0.5% increase for the month. Service pricing also remained sticky.

After an initial downside reaction to the data release, markets shook it off and slowly traded upwards from the news release lows throughout the day and the following day, showing a different reaction to a hotter-than-expected CPI than we are used to. Treasury yields also traded slowly lower throughout the day after an initial spike on the news release.

PPI: After the warm-to-hot CPI print on Thursday, Friday gave us a Producer Price Index (PPI) data release that was below expectations, showing mixed signals on the inflation front.

The report showed wholesale prices falling by 0.1% in December month-over-month, below the Dow Jones economist estimate of a gain of 0.1%. 

Core PPI, which excludes volatile food and energy, was flat versus the estimate for a 0.2% increase.

The PPI data release was received in a rather muted fashion by the markets, as the major stock market averages closed higher for the week.

Treasury Yields Fall

One surprise last week was the 10-year note yield’s reaction to the warm/hot CPI data last Thursday. In the past, yields would have risen and kept rising on CPI data like this. This time, they quickly rose on the data release and subsequently fell throughout the day as major equity indexes rose.

This price action further illustrates the market’s expectations for lower rates to come in the future. Market expectations for six rate cuts are real. Could the market be wrong?

Bitcoin ETFs Launched

In a historic move for cryptocurrency, 11 spot Bitcoin ETFs were launched last Friday, ending a lengthy debate about the likelihood of this type of ETF.

On the day before the ETFs were approved and trading started, there was some confusion and drama. The SEC’s Twitter account was reportedly hacked, and a tweet was released claiming that the approval had been granted, even though it had not yet been approved. 

The price of spot Bitcoin was lower by approximately 2.48% for the week as of Saturday. Spot Bitcoin trades 24/7, but the ETFs trade during normal market hours.

The Takeaway

2024 is young, and markets are feeling out the market direction, clarity, and narrative. Stock bulls seem to have the upper hand so far this year, as hopes for rate cuts are the prevailing narrative.

The digestion of the most recent inflation data was constructive, and market participants now look to next week’s retail sales data and consumer sentiment data. We, the consumer, are responsible for 70% of the nation’s gross domestic product (GDP), so everyone will be watching this data for indications of consumer health.

Treasury yields reacting to the downside on warm/hot CPI data is encouraging, which could help to spur lending activity. 


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