The S&P 500 Index reached an all-time high last week, but equities are still uneven to start the year.
The overall economic data was positive last week, but the market seems to be mostly concerned with the first Fed rate cut. With the strong economic releases, futures for the Fed to cut rates at their March meeting dropped from a 76% probability just a week ago to only 46% this week. It’s likely markets got ahead of itself in expecting a rate cut in the 1st quarter of 2024. Initial Jobless Claims dropped to 187,000, which was 20,000 less than expected and the lowest weekly level in almost one year.
Retail Sales for December came in higher than expected (+0.6%) which was more than double November’s growth and was higher by 5.5% on a year-over-year basis.
The housing market is showing some signs of life as Mortgage Applications were higher for the 2nd consecutive week and the NAHB Housing Index hit the highest level in 3 months. Manufacturing data is still weak, but the consumer has remained resilient with stabilizing inflation and plenty of job openings. In fact, the preliminary reading on Consumer Sentiment showed a bounce to 18-month highs. During presidential election years, the S&P 500 finished the year in the green since 1952, with the exception of 3 years, which were all open elections (no incumbent). However, the path to green is typically choppy. Expect more rocky trading as seasonality suggests rough seas in the first quarter.
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