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Financial Market Update – Week of 01/29

January 29, 2024

Major U.S. stock market indexes once again traded to the upside last week, with encouraging economic data helping to buoy the gains. With so much going on, this is an overview of last week, plus what is on the horizon this week.

Tallying last week’s major stock market index performances, the S&P 500 increased by 1.06%, the Nasdaq 100 rallied by 0.62%, and the Dow Jones Industrial Average rose by 0.65%.

Solid GDP Gains

Gross domestic product (GDP) measures the total amount of goods and services produced by a country, and it showed impressive gains in the fourth quarter of 2023. Data shows it grew at a whopping 3.3% annualized rate in Q4 2023 versus economist expectations for a 2% gain.

Data prints like these can be surprising — how can there be such a large disparity between expectations and the actual result? Consumer and government spending can influence the data to an extent, and perhaps we saw some of that in this data release.

Major stock market averages took the data in stride, finishing higher on Thursday after the data was released. Thursday’s close also marked the fifth straight record close for the S&P 500.

Inflation Relaxation

The rate of price increases cooled as 2023 came to a close, according to the most recent Core Personal Consumption Expenditures (PCE) data release.  

The Fed’s preferred inflation indicator showed prices up 0.2% in December and prices higher by 2.9% year-over-year. Dow Jones economists expected respective increases of 0.2% and 3%.

So, it is safe to say that prices have been increasing less aggressively overall, but we are still a long way from pre-2020 levels and the Fed’s target of 2%.

It’s Fed Week

On top of all the economic data slated for release, we have the January Federal Open Market Committee meeting on January 30-31, with the big decision on interest rates and the subsequent commentary scheduled for 2:00 p.m. ET on the 31st.

As of last Friday’s market close, probabilities show a 96.7% chance of no change in interest rates and a 3.1% chance of a 25 basis point cut at the January 31st meeting, according to the CME FedWatch Tool.

Investors will be scouring the written statement for clues about the future timing of Federal Reserve (Fed) interest rate policy changes.  

Earnings Season

It is also a big week for earnings, with juggernauts Microsoft and Alphabet set to report. AI commentary on the conference calls will undoubtedly be a focus of investors, with both companies at the forefront of this arena.

As of Friday, for Q4 2023 (with 25% of S&P 500 companies reporting actual results), of these companies, 69% have reported actual EPS above estimates, which is below the 5-year average of 77% and below the 10-year average of 74%, according to data from Factset.

Earnings season heats up this week and into February.

The Takeaway

Major U.S. equity indexes continued to be supported by solid economic data releases, and we get the double whammy of earnings season and the Fed this week.

Market narratives are dynamic, and many investors want to see an earnings and fundamentals-driven stock market (as opposed to such a Fed-driven and perhaps AI-driven one). That could be in the cards soon, once the picture of the Fed becomes clearer over the next few months. We will look for clues of such a shift throughout the remainder of the Q4 earnings season.

The January 31st Fed meeting has market expectations of producing no changes in interest rates, according to the CME FedWatch Tool. Market watchers will be all ears for transparency and clues regarding the Fed’s mood going forward.

Earnings expectations are rather tempered overall as we approach the bulk of the season. However, expectations are high for AI-associated names, with a large concentration of the stock market’s gains being in information technology.


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