Last Week on Wall Street

Last Week on Wall Street - March 23th, 2024

S&P 500: 2.29% DOW: 1.97% NASDAQ: 2.85% 10-YR Yield: 4.20%

What Happened?

All three major indices witnessed significant gains this week, with the S&P 500 rising by 2.3%. The Dow recorded gains just below 2%, marking its strongest performance since December, while the Nasdaq outpaced the others with an impressive surge of nearly 2.9%. Market optimism was fueled by the Federal Reserve's decision to maintain unchanged rates during its meeting. Fed Chair Jerome Powell's remarks reassured investors that rate cuts are still on the horizon, despite recent concerns about inflation spikes.

Thursday saw the major indexes hitting record highs for the second consecutive day, reaching all-time intraday highs as well. It marked the fourth consecutive winning session for all three indexes, with the Dow approaching the 40,000 level by Thursday's close.

Notable stock movements included FedEx, which saw a climb of over 7% on better-than-expected earnings. Conversely, Nike (-6.9%) and Lululemon (-15.8%) experienced sharp declines due to weak guidance and slowing growth in North America and China.

Beneath the surface, the Communications Sector rallied by 3.5%, signaling a rebound in Tech, followed by gains in Industrials (+2.9%) and Consumer Discretionary (+2.8%). Real Estate (-0.40%) was the sole sector to experience a decline this week, attributed to reduced demand for mortgage rates amid sustained interest rates.


Fed Holds Rates Steady and Maintains Three Cuts This Year

  • Following its two-day policy meeting, the central bank’s rate-setting Federal Open Market Committee said it will keep its benchmark overnight borrowing rate in a range between 5.25%-5.5%.
  • Along with the decision, Fed officials penciled in three quarter-percentage point cuts by the end of 2024, which would be the first reductions since the early days of the Covid pandemic in March 2020.

The key takeaway - The Federal Reserve held the federal funds rate steady at 5.25% to 5.5%, marking the fifth consecutive meeting without changes. The Fed's "dot plot" projections suggest three rate cuts in 2024 and additional reductions in 2025 until the fed funds rate stabilizes around 2.6%. Chairman Jerome Powell reiterated the Fed's commitment to achieving its 2% inflation target and emphasized the significant progress made towards the dual mandate objectives, highlighting substantial easing of inflation alongside a resilient labor market, which he deemed as positive developments. As a result, the Fed raised its GDP growth forecast this year to 2.1% and slightly adjusted unemployment and inflation projections.

Market participants widely expected the central bank to keep current interest rates unchanged, citing strong labor market data and higher-than-expected inflation figures in February. Moving forward, both these data points will be closely scrutinized to anticipate the Fed's next move. While the FOMC did not specify the timing of potential rate cuts, the outlook remains consistent, with the first cut anticipated in June.


US Business Activity Continues to Rise Amid Upturn in Manufacturing Production

  • US economic conditions continued to improve, with growth

    accelerating across both manufacturing and service sectors.

  • Average selling prices increased in February and remained high compared to pre-pandemic levels, primarily due to service sector inflation. This suggests that consumer price inflation will likely remain elevated in the coming months.

The key takeaway - US business activity continued to grow solidly at the end of the first quarter, albeit at a slightly slower pace than before. While services activity softened, manufacturing production surged to its fastest rate in almost two years. New orders also increased at a slower pace in March, but job creation accelerated to its strongest level in 2024 so far. Inflationary pressures intensified, with input costs rising at the fastest pace in six months, leading to firms increasing selling prices significantly.

Business confidence surged to a near two-year high, driven by signs of broader economic pickup. Employment levels increased across both sectors, with manufacturing experiencing its highest job growth in eight months. Despite supply chain disruptions easing, purchasing activity was scaled back, leading to reductions in inventory levels. Overall, the data suggests another quarter of robust GDP growth and sustained hiring, with manufacturing leading the way in production gains. However, rising costs and strengthened pricing power raise concerns about upward pressure on consumer prices in the coming months.


US Initial Jobless Claims Ease in Sign of Resilient Labor Market

  • The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, while sales of previously owned homes increased by the most in a year in February.
  • Weekly Jobless Claims in the US decreased by 2,000 to 210,000

The key takeaway - Last week, initial applications for US unemployment benefits remained close to historically low levels, highlighting the labor market's resilience. Continuing claims, serving as a proxy for the number of individuals receiving unemployment benefits, also saw little change, remaining at 1.8 million for the week ending March 9. Despite elevated interest rates and some signs of cooling in the labor market, applications for unemployment insurance have remained subdued over the past year.

Revised data from the previous week showed that filings for benefits were even lower than initially reported. Federal Reserve Chair Jerome Powell emphasized the strength of the labor market, noting that initial claims are "very, very low." Powell added that although hiring growth has slowed, there's no evidence of increasing layoffs leading to a rise in unemployment.


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