S&P 500: 1.66% DOW: 1.30% NASDAQ: 1.49% 10-YR Yield: 4.26%
Last Week on WallStreet - February 24th, 2024
What Happened?
Markets concluded a shortened trading week on a high note, with both the S&P 500 and Dow Jones Industrial Average setting new all-time highs. The week began with a mixed bag of economic data from January's PMI report, highlighting a potential deceleration in the service sector, while manufacturing businesses appeared to stabilize. The Federal Reserve's latest FOMC meeting minutes revealed a cautious stance, indicating a probable maintenance of current interest rates through the first half of the year, amidst lingering concerns over inflation. A significant portion of this week's market volatility was influenced by the anticipation and aftermath of NVIDIA's earnings announcement, which occurred post-market on Wednesday. NVIDIA not only surpassed earnings forecasts but also achieved a $2 trillion market valuation, producing positive widespread effects across both U.S. and global markets. NVDA's positive results fueled the continuation of the AI rally in the tech sector.
Economy Grew Steadily in February, S&P Finds, as US Manufacturers Rebound
- The flash U.S. manufacturing purchasing managers index (PMI) rose to a 17-month high of 51.5
- The S&P flash U.S. services PMI dipped to a three-month low of 51.3
- New orders, a sign of future sales, picked up at manufacturers and held steady at service firms
- The prices that businesses pay for supplies rose at the slowest pace since 2020 in February
The key takeaway - This month's PMI report is mixed with strong manufacturing output, yet declining services sector activity. This scenario suggests that while manufacturing may be recovering, weakness in services may dampen overall economic growth. If the trend persists, it could potentially lead to a slowdown in GDP growth, particularly if service sector declines outweigh manufacturing sector gains, as the services sector represents a larger portion of the economy. This could impact consumer spending, business investments, and overall economic confidence.
Additionally, the current cautious stance on interest rate cuts by the Federal Reserve, influenced by PMI data and other economic indicators, reflects the delicate balance between stimulating economic growth and managing inflationary pressures. Given the mixed results embedded in this report, the Fed will need to see more data to change their current stance.
Fed Officials Expressed Caution about Lowering Rates too Quickly at Last Meeting, Minutes Show Federal Reserve officials indicated at their last meeting that they were in no hurry to cut interest rates and expressed both optimism and caution on inflation “Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent” “In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle"
- Federal Reserve officials indicated at their last meeting that they were in no hurry to cut interest rates and expressed both optimism and caution on inflation
- “Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent”
- “In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle"
The key takeaway - The Federal Reserve is focused on curbing the threat of sticky inflation, taking a cautious stance on cutting interest rates. During the most recent Federal Open Market Committee (FOMC) meeting, the consensus, based on the inflation figures then available, leaned towards it being too early to contemplate rate reductions in the near term. Subsequent to that meeting, the release of unexpectedly high Consumer Price Index (CPI) and Producer Price Index (PPI) data has reinforced the rationale for maintaining the current pause on lowering interest rates. This recent inflation data forces market participants to reconsider expectations, which had previously been optimistic about potential rate cuts early this year. Now, there's a growing anticipation of a 'higher-for-longer' interest rate environment. This adjustment in expectations is likely to exert upward pressure on market yields, potentially affecting asset prices and liquidity negatively.
Greg Robb - MarketWatch
Existing Home Sales Rose 3% to Start the Year, but Higher Mortgage Rates are Already Hurting
- Inventory of homes for sale in January increased to 1.01 million units, up 3.1% from January 2023, but still at a low 3-month supply.
- The count is based on closings, so the contracts were likely signed in November and December, when mortgage interest rates backed off their October high of 8%.
- By mid-December, the rates had hit a recent low of around 6.6%. Today they are back over 7%
The key takeaway - The rise in previously owned home sales signals positive momentum in the housing market, with increased consumer confidence throughout the last few months of 2023. However, limited inventory continues to drive up home prices, posing challenges for affordability. Current homeowners are reluctant to sell their home and forgo their attractive mortgage rates, reducing available homes for sale. The competitive market, marked by multiple offers and a significant share of homes sold above list price, favors sellers. Higher mortgage rates are already impacting the market, potentially dampening demand. First-time buyers face difficulties due to the shortage of lower-priced homes for sale. Overall, while home sales are increasing, challenges such as low inventory, rising prices, and affordability constraints persist in the housing market.
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