By Jack Kraft, CFA, Investment Strategist
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Equities had another positive week as stocks ran higher amid a flurry of corporate earnings reports and commentary from U.S. Federal Reserve (Fed) officials on monetary policy. The S&P 500 advanced 1.2% for the week and posted a new record high. Elsewhere, the Dow was up 0.7%, while the Nasdaq rose 2.3% during the holiday-shortened trading week. Small caps continued to struggle into the new year, with the Russell 2000 down for its fourth consecutive week.
The S&P 500 has finally hit a fresh all-time high for the first time in 512 trading days, which ranks as the sixth longest streak. According to JPMorgan, this marks the 13th time since the Great Depression that the S&P 500 has gone more than a full year without new highs. Surprisingly, all-time highs have historically been a bullish indicator, followed by higher highs for stocks. In fact, one year following a new high price level, the S&P 500 has risen 13 out of 14 times by an average of 11% in that span. Going back to 1957, one thing that sticks out is that all-time highs tend to cluster together. For example, in 2021, the S&P 500 hit roughly 70 new all-time highs before ultimately peaking in 2022.
Understandably, there is some hesitancy investing when markets are at record levels and can cause investors to exhibit some cognitive biases, such as regret aversion bias. In this bias, people tend to avoid making decisions that will result in action out of fear that the decision will turn out poorly. Investors who exhibit this bias tend to overlook their time horizon and investment goals in exchange for the comfort of keeping things the same.
Last week, economic data was in focus as several prints pointed to a resilient U.S. economy. December retail sales exceed expectations, underscoring a strong consumer in the face of higher rates and inflationary pressures. Furthermore, a gauge that measures consumer sentiment by the University of Michigan improved broadly, showing its highest reading since July 2021. Home builder sentiment was also positive, as housing starts came in better than expected. On top of the positive economic data, multiple Fed governors offered somewhat hawkish statements on the risks of cutting the federal funds rate too soon. All of this together was the perfect storm for a move up in Treasury yields last week, which saw the 10-year Treasury note increase roughly 20 basis points to well above the 4.0% level.
Despite the overall positive performance at the index level, sector performance seemed to be uneven, with only five of the 11 S&P 500 sectors clocking positive performance last week. Leading the pack was the Technology and Communication Services sector, as buzz around artificial intelligence continued to boost investor sentiment. Chipmakers outperformed, with Nvidia rising nearly 9.0% on reports of higher chip demand. Semiconductor stocks also caught a tailwind from positive earnings reports out of the group last week. On the flip side, Utilities, Real Estate and Energy lost more than 2%, as these more dividend-oriented sectors struggled to compete with attractive risk-free rates.
This week’s docket will be mostly dominated by the continuation of earnings season, while traders monitor a lighter week in economic data. Roughly 75 S&P 500 constituents will be issuing fourth-quarter profit results, including notable names such as Tesla (TSLA), Netflix (NFLX), ServiceNow (NOW), D.R. Horton (DHI), Visa (V), Abbott Health Care (ABT), American Airlines (AAL), Blackstone (BX), Lockheed Martin (LMT) and chipmaker Texas Instruments (TXN), just to name a few. Economic data will also be a focal point as updates on the housing market will hit the tape with new home and pending home sales data. Elsewhere, we will get an indication with how the U.S. economy grew at the end of 2023 with a preliminary print for fourth-quarter GDP, which is estimated to be 1.7%. Data on the consumer will also be observed with separate updates on personal income and personal spending. Lastly, the Fed’s preferred proxy on inflation will come out on Friday when the Personal Consumption Expenditures Price Index data will be released.
U.S. Economic Calendar 01/22/2024 – 01/26/2024
| TIME (ET) | REPORT |
PERIOD |
MEDIAN FORECAST |
PREVIOUS |
| MONDAY, JAN. 22 | ||||
| 10:00 AM | U.S. leading economic indicators |
Dec. |
-0.30% |
-0.50% |
| TUESDAY, JAN. 23 | ||||
| None scheduled | ||||
| WEDNESDAY, JAN. 24 | ||||
| 9:45 AM | S&P flash U.S. services PMI |
Jan. |
51 |
51.4 |
| 9:45 AM | S&P flash U.S. manufacturing PMI |
Jan. |
47.3 |
47.9 |
| THURSDAY, JAN. 25 | ||||
| 8:30 AM | Q4 GDP (prelim) |
1.70% |
4.90% |
|
| 8:30 AM | Initial jobless claims |
Jan. 20 |
200,000 |
187,000 |
| 8:30 AM | Durable-goods orders |
Dec. |
1.50% |
5.40% |
| 8:30 AM | Durable-goods minus transportation |
Dec. |
— |
0.40% |
| 8:30 AM | Advanced U.S. trade balance in goods |
Dec. |
-$89.3B |
|
| 8:30 AM | Advanced retail inventories |
Dec. |
-0.10% |
|
| 8:30 AM | Advanced wholesale inventories |
Dec. |
-0.20% |
|
| 10:00 AM | New home sales |
Dec. |
650,000 |
590,000 |
| FRIDAY, JAN. 26 | ||||
| 8:30 AM | Personal income |
Dec. |
0.30% |
0.40% |
| 8:30 AM | Personal spending |
Dec. |
0.40% |
0.20% |
| 8:30 AM | PCE index |
Dec. |
— |
-0.10% |
| 8:30 AM | Core PCE index |
Dec. |
0.20% |
0.10% |
| 8:30 AM | PCE (year-over-year) |
— |
2.60% |
|
| 8:30 AM | Core PCE (year-over-year) |
3.00% |
3.20% |
|
| 10:00 AM | Pending home sales |
Dec. |
2.00% |
0.00% |
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Weekly Market Commentary/Market