The Week in Review 02/12/2024
“Chance favours the prepared mind.” – Louis Pasteur
Good Morning,
It was another winning week for the stock market.
Small cap stocks saw some rebound action after underperforming to start the year. The Russell 2000 jumped 2.4% last week. The S&P 500 closed above 5,000 for the first time, drawing support from gains in the mega cap and semiconductor spaces.
Many stocks participated in a relatively broad advance. The equal-weighted S&P 500 gained 0.5% this week. There still has not been any concerted selling interest despite reports that the market is overbought in the short-term, which has acted as its own upside catalyst.
Another catalyst for the upside price action came in the form of positive responses to some earnings news. Ford, Eli Lilly, DuPont, Arm Holdings, and Walt Disney were among the standout earnings-related winners this week.
Meanwhile, Amgen and PayPal were some of the more influential earnings-related laggards.
Notably, this week's broad advance occurred despite sharp declines in Treasuries. The 2-yr note yield rose 12 basis points to 4.50% and the 10-yr note yield rose 16 basis points to 4.19%.
The increased selling in Treasuries started week before last in response to ongoing strength in economic data of late that has the market repricing rate cut expectations. This also followed comments from Fed Chair Jerome Powell the previous weekend, who said on 60 Minutes that the Fed needs to see more evidence that inflation is moving sustainably down to its 2% target before lowering rates.
Last week's release of the January ISM Services PMI featured an acceleration in services sector activity in January, replete with a pickup in new orders, employment, and prices. The weekly jobless claims report showed a decrease in the number of claims.
Also, the annual CPI revisions were released last week, garnering added attention due to potential implications for the Fed's rate cut path. The revisions were relatively friendly since they did not alter the market's view on inflation much.
Treasuries did not respond favorably to last week's slate of strong auctions, including a $25 billion 30-yr bond offering, a $54 billion 3-yr note sale, and $42 billion 10-yr note auction.
The probability of a 25 basis points rate cut to 5.00-5.25% at the May FOMC meeting is 63.1% now, down from 73.2% one week ago, according to the CME FedWatch Tool.
Market Snapshot…
- Oil Prices – Oil prices rose as hope for a ceasefire in the Israel-Hamas war faded. West Texas Intermediate crude futures (WTI) added 62 cents to settle at $76.84 a barrel. Brent crude futures added 56 cents to close at $82.19 a barrel.
- Gold– Gold prices slipped pressured by elevated Treasury yields. Spot Gold was down 0.5% to $2,022.86 per ounce while U.S. gold futures settled 0.4% lower to $2,038.7. Silver finished the week at $22.594.
- S. Dollar– The dollar index fell 0.029% to 104.08. Euro/US$ exchange rate is now 1.079.
- S. Treasury Rates– The yield on the 10-year Treasury note was flat at 4.173% after investors weighed encouraging consumer price index revisions.
- Asian shares were mixed in overnight trading.
- European markets are trading mostly higher.
- Domestic markets are trading slightly higher this morning.
We’re coming into the back nine of earnings season with 67% of S&P 500 companies reporting. So far, the blended earnings growth rate is 2.9% year-over-year.
Even though we’re two-thirds of the way through the season, there are still many companies left to report. This week we will hear from Waste Management, Airbnb, AIG, Cisco, Kraft Heinz, Deere, and Archer-Daniels-Midland among others.
On the economic front, we will receive January’s CPI report on Tuesday, Retail Sales on Thursday, and PPI report on Friday. Economic releases have widely been better than expected in recent months and we expect this trend to continue.
Have a wonderful week!
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