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Financial Market Update – Week of 01/22

January 22, 2024

Adding on to the gains from the week before, the Dow Jones Industrial Average and S&P 500 put in another positive week, causing the S&P 500 to break its all-time daily closing high previously set on January 3rd, 2022. Strength was noted in technology stocks, paving the way to the broader market record close.

Overall, the S&P 500 rose by 1.17%, the Nasdaq 100 added 2.86%, and the Dow Jones Industrial Average was higher by 0.72%.

Consumer Sentiment Rises

According to data from the University of Michigan’s Consumer Sentiment report, consumer confidence has surged, and data shows the biggest two-month gain since 1991.

This data can be seen as confusing, as many Americans are struggling to make ends meet with necessities like food and shelter at high costs.

Credit card balances are rising, too, and so are delinquencies. But the data is the data,  and it showed the Consumer Sentiment Index came in at 78.8, up 9.1 (13.1%) from the December final reading. The latest reading was above the forecast of 70.0.

Rate Cut Expectations Shift

Nothing stays the same for too long in the financial markets. Rate cut expectations shifted over the past week, with the probability of a March rate cut sitting at 46.2% at the end of the week versus 76.9% one week prior.

Hawkish rhetoric from voting Federal Reserve (Fed) Governor Christopher Waller included a note that while inflation is approaching the 2% target, the Fed should not rush towards rate cuts until it is clearer that lower inflation has been sustained.

Other Fed voting member commentary last week included Atlanta Fed President Raphael Bostic noting that he expects rate cuts to happen in the third quarter. Bostic seemed more dovish than Waller. 

Voting Fed members speak frequently, and It is helpful to pay attention to the commentary of the other voting Fed members (not just Powell) to gauge Fed sentiment.

The S&P 500 digested the commentary and obviously did not mind it, finishing the week at all-time closing highs even as 10-year note yields ended higher on the week.

Treasury Yields Climb

Ten-year note yields were back on the rise last week, adding around 19 basis points to settle near 4.145%.

The uptick in 10-year note yields last week may show the market’s negative reaction towards rate cuts beginning later than desired and further digestion of recent CPI data. The 10-year yield tends to rise when higher borrowing costs (i.e., higher interest rates) are expected. Despite this, the Dow and S&P 500 still closed the week at fresh all-time highs.

The 2-year note yield also rose last week, adding around 24 basis points to close the week near 4.389%. The 2/10 yield curve remains inverted – which often signals a recession –  although the inversion is well off its steepest levels experienced in mid-2023.

The Takeaway

S&P 500 all-time highs: that sums up the broader U.S. economy right now for long-term investors.

Consumer sentiment can be a real riddle, with credit card balances and delinquencies rising. This data illustrates a disconnect between the lives of a large segment of Americans and the associated government data.

But for long-term investors, the “data doesn’t matter” sometimes. Staying dedicated to a disciplined plan has proved to stand the test of time.

As the market seeks a dominating narrative for 2024, we will be keeping our eyes on the effect of Treasury yields on major stock market indexes. Last week saw rising yields, and the major equity indexes not only didn’t mind but surged to the upside.


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