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Market Currents – 2/9/24

  • A Positive Start to 2024.  Markets began the new year on an encouraging note.  All three major US equity indices closed out January with gains, rallying to their first closing highs in more than two years.  The positive momentum was owed in part to expectations of Federal Reserve interest rate cuts, and the prospects of a “soft landing” in the US economy.  Echoing the trend from 2023, a few mega-cap technology stocks, driven by enthusiasm for artificial intelligence, played a pivotal role in boosting the market’s performance.  Treasury yields experienced a modest increase, rebounding from their sharp drop in the last quarter of the previous year.    
  • Corporate Earnings.  The Q4 earnings season for US corporations is well underway, and results are generally exceeding expectations.  Impressively, corporate earnings have thrived even against the backdrop of higher interest rates.  Moderating input costs, and a heightened focus on cost containment and operational efficiencies, are helping profitability.    
  • The Fed Inches Closer to Cuts.  In its January meeting, the US Federal Reserve opted to leave interest rates unchanged, holding them at the 5.25% to 5.50% interval.  This maintains the rates at their highest level in over two decades.  While the decision was widely expected, the central bank hinted at the possibility of rate cuts later in the year.  Federal Reserve Chair Jerome Powell, during his press conference, indicated that a rate cut in the forthcoming March meeting is “not the most likely scenario,” stressing the need for the committee to gain further confidence that inflation is moving towards the 2% goal in a sustainable manner. 
  • Economic Indicators Support a Soft Landing Outlook.  The US economy remains resilient, defying widespread forecasts for a slowdown, with a majority of economic reports and indicators displaying continuing strength.  Gross domestic product (GDP), the most comprehensive indicator of economic activity, expanded at an annualized rate of 3.3% in the fourth quarter.  January payrolls (released in February) delivered a strong surprise, with 353,000 jobs added during the month. Consumer spending remains on a healthy growth path.  Business investment also saw a noticeable uptick during the quarter.  Meanwhile, the trend of declining inflation is helping to bolster a soft landing narrative.   
  • As Goes January, So Goes the Year?  Traditionally, a robust January is seen as a positive precursor for annual market trends.  This year has already seen multiple new all-time highs, driven by steady economic growth, and reinforcing our cautiously optimistic stance on US equities.  The cycle of interest rate hikes by the Federal Reserve has likely concluded; attention has now shifted to when and how much the Fed might reduce rates.  Encouragingly, the markets responded relatively calmly to the Federal Reserve’s indications that a March rate cut was unlikely.  The reaction likely stems from a steady flow of positive economic data, reinforcing the Fed’s cautious approach and the market’s confidence in monetary policy decisions.  Our team at Ascent continue to monitor market developments closely on behalf of our clients.