1. January ISM Manufacturing PMI shows ongoing contraction.
The manufacturing PMI increased slightly to 47.4 in December from 46.7 in November, indicating marginal improvement but still another month of contraction. In fact, this mark makes the 14th consecutive contractionary period in the U.S. manufacturing sector.
2. JOLTS Job Openings Report shows easing in labor market conditions
In November, U.S. job openings were slightly down by 62,000 to 8.79 million. This report demonstrates the third consecutive month of declines in job openings which demonstrates some easing in the labor market.
3. FOMC Minutes disappoint by not discussing rate cutting schedule.
The Federal Reserve's December policy meeting minutes indicated an expectation that the federal funds rate would drop to 4.6% via three rate cuts by the end of 2024; however, there was no substantial discussion of impending rate cuts which has to be seen as a disappointment by market participants who sharply bid up the market in the final weeks of 2023.
4. U.S. Non-Farm Payrolls Report shows strong growth.
The U.S. Non-Farm Payrolls report for December 2023 showed that 216,000 jobs were added, which was significantly higher than the expected 170,000. This increase in jobs is a strong indicator of the labor market’s health and suggests robust economic activity. The data contrasts with the Services PMI Employment Index, which showed a decrease, highlighting the complexity of current labor market conditions.
5. ISM Services PMI Report trends lower.
The December Services PMI dipped from a November 52.7 to a December 50.6, indicating still slight expansion in the services sector. However, the Employment Index dipped to 43.3%, its lowest reading since July 2020, contrasting with the federal report showing 216,000 jobs added in December. The current services PMI of 50.6 is the lowest mark in seven months.
Technology investors led the market downward as likely profit taking and portfolio rebalancing efforts weighed on the larger indices. The technology sector posted a loss of 4.34% followed by consumer discretionary down 3.46%. The S&P 500 index ended the first week of the year down 1.55%. The Dow Jones industrial average ended down 0.59%. NASDAQ 100 was down 3.12%.
The few bright spots in US equity markets were the healthcare, utilities, energy, and financial services sectors, which all posted gains. Healthcare was especially strong with an increase of 2.01% for the first week of the year.
The aggregate US bond market was down just over one percent for the first week of the year. Commodities were all in the red apart from oil and natural gas, which posted modest and outsized increases respectively. The US dollar increased.
In the week ahead, Thursday, January 11 and Friday, January 12 bring CPI and PPI data while earning season begins on Friday with major banks Bank of America, Citigroup Inc, JPMorgan Chase and Company, and Wells Fargo and Company reporting earnings. Higher than expected inflation readings would be unwanted because the market may fear the federal reserve does not have inflation well enough under control, despite aggressively increasing interest rates to 22-year highs. Higher inflation readings would likely push any future rate cuts further into 2024. Finally, a strong earning season would help to justify lofty valuations. Investors likely want to see earnings grow into the currently elevated multiples that have been created after the end of the year rally.
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