Last Week on Wall Street

Last Week on Wall Street - March 2nd, 2024

S&P 500: 0.95% DOW: -0.11% NASDAQ: 1.74% 10-YR Yield: 4.18%

What Happened?

This week, markets experienced a continued rally, with the S&P 500 and Nasdaq both hitting record highs. The S&P 500 surpassed the 5,100 mark, while the Nasdaq climbed above 16,300 for the first time since November 2021. This momentum is fueled by a growing enthusiasm for artificial intelligence and optimistic expectations that inflation pressures are easing, despite negative indicators from consumer confidence and manufacturing sectors. The market's upbeat mood largely revolves around NVDA, a standout in the stock market, with clear FOMO from investors. Meanwhile, the Dow Jones saw minimal movement, affected by underperformance in companies like UNH, NKE, and AMGN.

Sector winners for the S&P 500 included Technology (+2.66%), Real Estate (+2.12%), and Consumer Discretionary (+2.06%). Sector losers included Healthcare (-1.03%), Consumer Staples (-0.43%), and Utilities (-0.39%).


Key Fed Inflation Measure Rose 0.4% in January as Expected

  • The personal consumption expenditures price index excluding food and energy costs increased 0.4% for the month and 2.8% from a year ago, as expected.
  • Headline PCE, including the volatile food and energy categories, increased 0.3% monthly and 2.4% on a 12-month basis, also in-line.

The key takeaway - The Personal Consumption Expenditures Index (PCE), which tracks changes in the prices of goods and services bought by U.S. consumers, increased by 0.3% in January, aligning with the Federal Reserve's expectations. This rise was propelled by a 0.6% uptick in consumer spending on services from the previous month, while prices for goods declined by 0.2%.

Essentially, consumers are allocating more towards services like housing, utilities, financial services, and healthcare, and less on goods. Surprisingly, personal income also saw a 1% increase in January, bolstered by social security benefits and wages. However, despite a 3.8% rise in personal savings rates last month, they remain below the previous year's levels. The market reacted favorably to this data, as it met consensus expectations. Going forward, both investors and the Federal Reserve will keep a close eye on the PCE to discern if inflation is more persistent than anticipated and to assess consumer health.


US Manufacturers Contract Further, Rays of Light on the Horizon

  • U.S. manufacturing slumped further in February, with a measure of factory employment falling to a seven-month low amid layoffs, but there were signs activity was on the cusp of rebounding.
  • The survey from the Institute for Supply Management on Friday showed customer inventories declining for a third straight month, which the ISM considered as positive for future new orders and production growth.

The key takeaway - Contrary to the prior week's optimistic flash PMI report, the actual ISM survey results for February fell short of expectations, with the Purchasing Managers Index (PMI) for U.S. manufacturing activity dropping to 47.8 from 49.1 in January. This decline signals a contraction in manufacturing output and could forewarn of a recession. The survey also revealed difficulties among suppliers to keep pace with demand, though inflation at the factory level remained moderate.

Despite a minor increase, both manufacturing prices and consumer inflation expectations remained within the historical range, suggesting no immediate risk of a significant rise in goods price inflation. Even though the ISM survey's bleak depiction of the manufacturing sector, which makes up 10.3% of the economy, suggesting fears might be somewhat overstated.


Jesse Pound - CNBC

US Consumer Confidence Retreated in February

  • Consumer Confidence Index dropped to 106.7 in February from a revised 110.9 in January, ending three months of gains.
  • Inflation remains a key concern, but consumers showed less worry about food and gas prices, shifting concern towards the labor market and political environment.

The key takeaway - While overall inflation concerns persist, consumers are less worried about food and gas prices due to recent declines. However, concerns have shifted towards the labor market and US political climate. February saw a decline in consumer confidence, with less favorable views on current business and employment conditions and personal finances. Expectations for the next six months have also deteriorated, with increased pessimism about future business and labor conditions and a slight decrease in optimism about personal finances. The perceived likelihood of a US recession has risen. Plans for purchasing vehicles, homes, and major appliances, as well as vacation plans, have slightly decreased. Meanwhile, expectations for rising interest rates have slightly increased, potentially influencing future purchases. Despite this, consumers remain optimistic about the stock market.


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