Executive Summary of Major U.S. Economic Events for the Week of February 5 to February 9, 2024

60 Minutes Interviews U.S. Federal Reserve Chairman, Markets React Negatively on Monday

While no news was made during the 60 minutes interview of federal reserve chairman Jerome Powell, markets seemed to react negatively to the reaffirmation that interest rate cuts were not imminent. The chairman did state a majority of the FOMC is committed to reducing interest rates sometime in 2024, but the chance of the first step down being in March is low. Powell went on to say the FOMC understands the broad economy and labor markets are strong while inflation has trended downward, hence they feel there is time to continue to absorb more data before making the first rate cut.

S&P 500 price action over the week caused the average to close above 5,000 for the first time in history. The upward sloping support trendline which began at market lows in the fall of 2023 is intact.

ISM Services PMI Comes in Strong

The ISM services PMI for January came in strong at 53.4, which was above estimates of 52. This is the strongest reading since a September 2023 mark of 53.6.

Jobs Data Points to a Still Strong but Mildly Slowing Labor Market

Thursday's initial jobless claims from the U.S. department of labor showed that initial jobless claims eased by 9,000 to 218,000 claims. Continuing jobless claims east by 23,000 to 1,871,000 for the last week of January. New jobless claims have increased over the past few months, but the labor market remains strong.

Friday Inflation Revisions Show Persistent Downward Trend on Inflation

On Friday, the Labor Department's Bureau of Labor Statistics released revisions to 2023 Q4 inflation data. December CPI was revised from 0.3% to 0.2%. November CPI was revised from 0.1% to 0.2%. October CPI was revised from 0 to 0.1%. The revisions are yet another reaffirmation that a strong economy and labor market do not seem to be cultivating new bouts of inflation.

S&P 500 Index Crosses 5,000 in Intraday Trading on Thursday, Closes Definitively Above on Friday

A steady diet of positive earnings reports was enough to push the broad index just over the 5,000 mark during intraday trading for the first time in history on Thursday. On Friday, the S&P 500 ended the week near session highs; the index closed at 5,026, well above the psychological threshold of 5,000. Generally, all-time highs have been bullish indicators for the market in the subsequent 12 to 24 month period. According to data going back to 1958 compiled in this article published by Forbes, the S&P 500 experienced strong double digit rallies at 12 and 24 months after putting in a fresh all-time high after a bear market. Further, the market is showing signs of broadening; 7 of 11 U.S. equity market sectors are in the green year to date. Given the strong underlying economy, a bull market in equities can still be considered the base case.

If there were any reason to be cautious, it would be valuations. According to FactSet, S&P 500 company profits grew 2.8% in Q4 2023 compared to a year earlier. The S&P 500 now trades at just over 20 times projected 12 month earnings; the 10 year average multiple is 17.95.

Photo Credit: Sylvain Mauroux