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Market Recap – February 12, 2024

Keel Point

February 12, 2024

Last week’s positive economic and financial markets data triggered a positive response from stock markets with the S&P 500 closing above 5,000 for the first time, up 1.37% for the week and up 5.38% year to date. 

  • Also for the first time in two years, CEO optimism outweighs pessimism, signaling positive actions in their company plans for capital spending, employment, recruiting, and wages. (Conference Board & Business Roundtable). Consumer sentiment also remains positive and the outlook among homebuilders rose last week.
  • U.S. manufacturing surveys for January improved vs December, including pick-ups in new orders. The Atlanta Fed’s GDPNow is showing 2024 first quarter real GDP growth estimates at 3.4% as of last Thursday, February 8.
  • The annual Labor Department updates to the CPI calculations provided a downward revision of December’s headline CPI from 0.03 % to 0.02% — helpful to the Fed gaining additional confidence that inflation is moving in the right direction.

Much is said about the performance of the “Magnificent 7” stocks hyper-driving stock market performance unsustainably.  The good news is that the “Magnificent 7” rally has been earnings-driven rather than price-earnings multiple expansion.

  • As of last Friday, the “Magnificent 7” are up 12% YTD, on average, with individual companies ranging from Tesla down 27% to NVIDIA up 50%, respectively.
  • As a group, the “Magnificent 7” compared favorably to the remaining S&P 493 on: 2023 Q4 sales growth: +14% vs +2%; Q4 Margin growth: +7.5% vs -1.1%; and long-term consensus EPS growth: +20% vs +12%; which is different from the margin-less bubble in 2000-2001. (JPMorgan-Feb 2, 2024)

Productivity growth and why it matters.  Is generative artificial intelligence a factor yet?

  • Productivity growth surging to 4% in the second half of 2023 allowed the U.S. economy to grow at an accelerated annualized pace of 3.8% in that same period, while core PCE inflation was declining to a 1.9% annualized rate.
  • While the rebound in productivity growth largely was not generative AI already bearing fruit, it still looks likely to remain strong and settle around 1.5%-2% annual growth in 2024, which is important in restraining inflation at 2%. The AI revolution will continue to provide incremental productivity boosts, but its larger, transformative benefits will follow business investment in AI infrastructure, technology, and adoption, much like with the internet in the mid-1990s.

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SIPC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC, an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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