The Week in Review: 02/20/2024

Time makes more converts than reason.” – Thomas Paine

Good Morning,

Last week we suffered a small set back on the inflation front that brought out some profit taking after the impressive run since October lows.

The stock market experienced mixed price action last week. Tuesday's trade featured a broad, sharp retreat in response to a hotter than expected CPI (actual 0.3%; consensus 0.2%) and core CPI (actual 0.4%; consensus 0.3%) for January, which also sent Treasury yields sharply higher.

By the end of the week, however, the major indices managed to win back most of that lost ground.

Bond and equity markets were closed on Monday for Presidents Day.

The Russell 2000, for example, sank 4% on Tuesday, but ultimately settled 1.1% higher on the week.

The market-cap weighted S&P 500 declined 0.4% this week, but the equal-weighted S&P 500 jumped 0.7%. 

Only four of the 11 S&P 500 sectors closed lower on the week while five of them climbed more than 1%. The heavily weighted information technology sector saw the sharpest drop, down 2.5%, followed by the communication services sector, which fell 1.6%. On the flip side, the materials (+2.4%) and energy (+2.2%) sectors saw the biggest gains.

The stock market was not spooked by last week's slate economic data, holding onto to hope that inflation will continue to go the market's way, that the macroenvironment will remain strong, and that the Fed will cut rates sooner, rather than later.

In addition to the hot CPI reading, market participants also digested a below-consensus Retail Sales report for January, an unexpected drop in jobless claims to 212,000, and a hotter-than-expected PPI report for January. The 2-yr note yield settled 15 basis points higher this week to 4.65% in response to this week's data and the 10-yr note yield rose 11 basis points this week to 4.30%.

Coming into the week, there was a growing sense among some participants that stocks were overbought in the short-term and due for some consolidation. The market has been on a huge run since late October that had the S&P 500 and Dow Jones Industrial Average near all-time highs coming into the week. 

The move off late-October lows has been paced by gains in the mega cap space, so it makes sense that some mega caps suffered outsized losses last week due to profit-taking activity.

Amazon.com and Microsoft were losing standouts in the mega cap space, dropping 2.8% and 3.9%, respectively, last week. AMZN and MSFT and still up 11.6% and 7.5% in 2024. 

Have a wonderful holiday shortened week!!

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