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Market Recap – February 5, 2024

Keel Point

February 5, 2024

The big surprise last week was 353,000 new jobs reported for January and unexpected upward revisions to October, November, and December jobs.  Average hourly earnings increased by 4.5% over the last 12 months, and the unemployment rate remained at 3.7%.  After its post-Fed meeting sell-off on Wednesday, the stock market rebounded to reach new highs and close the week up by 1.3% and year to date up 4.55%. 

  • The Fed is challenged by the continuing good economic news: GDP growth accelerating in the second half of 2023, when it had been forecast to be in recession, and inflation dropping to a 1.9% annualized rate at the same time. Only a year ago many were concerned that a 1970s type stagflation (inflation together with recession) was how 2023 would end.
  • The good news of 2.5% GDP growth in 2023 compared to 1.9% in 2022, however, makes the Fed fearful of renewed inflation especially when it sees 2023 Q4 up 3.1% over Q4 2022.
  • The expectations that GDP growth would slow at the end of 2023 and beginning of 2024, were rebutted with December and January jobs growth doubling expectations; January being up 353,000 versus the consensus forecast for 170,000 new jobs in January.
  • Fed Chair Powell was adamant that the Fed needed to see more months with inflation annualizing at 2%. He said there would be no rate cuts in March as they watch how inflation handles stronger growth in the economy and labor markets. 
  • Stock investors had 50% odds on a March interest rate cut and were understandably disappointed that March rate cuts are off the table, and stocks sold off after his comments.

Thursday and Friday, investors celebrated good Q4 earnings reports and the declining odds of a 2024 recession signaled by stronger hiring, their belief that interest rates won’t be raised again this year, and that cuts may begin in May.  On Friday the S&P 500 was up 1.07%.

  • The 2024 “Soft Landing” scenario looks more like what happened in 1995 after the Fed stopped raising interest rates to stem inflation. As mentioned in our January 8 Talking Points: GDP growth bottomed out in Q4 1995 at 2.2%, and the S&P 500 was up 37%.
  • Productivity growth Q4 2023 was up 3.2%, which is mitigating the negative impact of rising wages on employment costs. How much of this is the economy getting back to normal from the pandemic vs generative AI and other factors is uncertain.  The hope is that productivity growth will continue and help boost stock prices the way it did in 1995-1999.

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  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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