The Only Game in Town

Feb 12, 2024

By Pete Biebel, Senior Vice President, Senior Investment Strategist
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Now that the distractions of the weekend have passed, it’s a sure bet that we’ll soon be getting back to the important stuff. No, not rating and comparing the Super Bowl commercials; I’ll bet that those discussions cool off faster than a leftover cocktail meatball. No, not Taylor and Travis; the odds are that topic too will fade from the headlines shortly after the Chiefs’ victory parade. And, no, not even cleaning up after the big party (How did Cheez Whiz get on the ceiling?). The big game is a fading memory (I just hope the Velveeta stains on the couch fade as quickly). No, as of this morning, all eyes will be back on the truly big game: the stock market.

Intermixed with the football headlines on Saturday were items announcing that the S&P 500 Index (SPX) hit the jackpot, closing above the 5,000 level for the first time ever. The index sweetened the pot by 1.37% for the week and ended near its high of the week, closing at 5026.61. That made it 14 positive results in the past 15 weeks; something SPX hasn’t accomplished in more than 50 years.

The NASDAQ Composite Index (COMP) also upped the ante, rising 2.31% last week. COMP ended the week at just over 15,990, its highest level in more than two years and within 1.4% of its all-time intraday high from late 2021. For the Dow Jones Industrial Average (DJIA), it came down to the wire. DJIA barely broke even; it gained a mere 0.04% for the week, but any increase was enough for its 14th gain in the past 15 weeks. DJIA and COMP both last had similar runs in the 1990s.

The odds-on favorite again last week was the Technology sector, which chalked-up nearly a 2.8% gain. For much of the past nine months, when the chips are down, the Technology sector came through. Coincidently, it was the chip stocks that helped power that gain. Two popular composite indices for semiconductor stocks have repeatedly registered new all-time highs in recent weeks.

Last week’s gains in the overall market, and in Tech stocks in particular, came in spite of interest rates trending higher. The yield on the benchmark U.S. Treasury 10-year note, which had been near six-month lows near 3.8% as February began, has climbed to near 4.2% and its high of the year. Much of that increase came last Monday following U.S. Federal Reserve (Fed) Chairman Jerome Powell’s appearance on 60 Minutes. That interview led many to believe that the Fed would likely not be cutting its target lending rate quite as much or quite as quickly as the market had come to expect. The higher rates meant the die was cast for the interest rate-sensitive Utilities sector, which rolled snake eyes, losing nearly 2% on the week. The Utilities sector was the worst of the U.S. equity sectors, though three other sectors had losses for the week.

The mood of the market has shifted in recent months. Concerns over a potential recession have all but vanished. Inflation no longer seems to be much of a threat. A soft landing now seems to be the odds-on bet. Where the timing and speed of future Fed rate cuts had been the primary focus, the market is now resolved that the cuts will come, they just won’t begin as soon as had been hoped. The market now seems comfortable with the belief that 2024 will bring two or three cuts at least. The focus seems to have zeroed in on improving earnings growth in 2024. The economy is chugging along better than just about anyone expected. A growing economy might keep interest rates elevated, but it should also mean that earnings growth can be better than expected.

That shift in focus has been the market’s ace in the hole for the past couple months. A stronger economy, even with elevated rates, has investors betting the farm on large, high-growth companies. For small caps and interest rate sensitive companies, not so much. And that goes a long way in explaining the disappointing market breadth. A relative handful of mega-cap stocks have powered the averages higher, while the majority of stocks have been watching from the sidelines. There have been many days in the course of the rally on which the averages have posted gains but on which there have been more declining issues than gainers.

Another area of concern is the extent of the rally. Seeing the averages continue higher at their recent rate would be like hitting a 16-game parlay. The rally over the past three and a half months has the averages overbought on both a short-term and a long-term basis. Checking the three- and four-month returns on SPX since 1970, the current rally ranks in the top one or two percent.

The averages are overdue for at least a resting phase. And the odds are it should begin soon. SPX could easily drift back into the low-4800s. Even slipping into the upper 4700s wouldn’t cause any concern from a technical perspective. The downside level for SPX that needs to hold is 4715ish. Falling below that level would mean the index had significantly broken below its 50-day moving average and its mid-January low.

The current earnings season still has several weeks with numerous reports, but most companies, including all of the very largest, have already published their fourth-quarter results. But, where the earnings calendar may be on the light side, the economic report calendar offers some heavyweight releases. Tomorrow offers an update on the Consumer Price Index with the Producer Price Index data to follow on Friday. Both reports are expected to reveal continuing decreases in the rate of inflation.

Can anyone tell me how to get guacamole out of shag carpeting?

Economic Calendar (2/12/24 – 2/16/24)



Monday 2/12/2024 No Reports Schedule

Tuesday 2/13/2024 Consumer Price Index, January, M/M



CPI ex-Food & Energy, January, M/M



CPI, January, Y/Y



CPI ex-Food & Energy, January, Y/Y



Wednesday 2/14/2024 No Reports Schedule
Thursday 2/15/2024 Initial Jobless Claims



Continuing Claims



Empire State Manufacturing Survey, February



Philadelphia Fed Manufacturing Survey, February



U.S. Retail Sales, January, M/M



Retail Sales ex-Autis, January, M/M



Industrial Production, January, M/M



Capacity Utilization, January



Friday 2/16/2024 Housing Starts, January, SAAR



Building Permits, January, SAAR



Producer Price Index, January, M/M



PPI ex-Food & Energy, January, M/M



PPI, January, Y/Y


PPI ex-Food & Energy, January, Y/Y


Consumer Sentiment (Preliminary), February




Links to previously published commentaries can be found at Investment Insights/Weekly Market Commentary/Market