The Goldilocks economy is alive and well. Economic growth for the 4Q surprised to the upside again with better-than-expected GDP growth last week at 3.3%. In addition, inflation pressures continue to fall as the Fed's favorite inflation gauge is now up 2.9% from a year ago. While that is still above the Fed’s preferred target of 2%, the core (ex-food and energy) PCE now has a 2% handle, its lowest level since early 2021.
In turn, the stock market had more price gains last week. Global equities were up over 1%, bringing them back to a positive year-to-date for 2024. Equity gains were led by international stocks as well as value stocks in the US. Bonds were slightly positive on the week, but are still down over 1% on the year. Commodities were up over 2% on the week and are now positive in 2024.
It was a big week for earnings last week too. With 25% of the companies in the S&P 500 now reporting, the blended (year-over-year) earnings decline for the S&P 500 is -1.4%. So far, I would qualify those numbers as disappointing.
That said, this week will be another big one for corporate earnings. Six stocks that make up a significant portion of the overall report earnings: Microsoft, Apple, Alphabet (Google), Meta (Facebook), Amazon, and Advanced Micro Devices. Large-cap growth stocks, led by the Magnificent Seven, are indeed off to another great start this year. They make up 29% of the S&P 500’s market cap, though despite lofty expectations, are still only expected to contribute 21% of the earnings over the next 12 months. The Financial sector, meanwhile, is 13% of the market and is expected to be 18% of the earnings.
This week is also the long-awaited Federal Reserve meeting. The markets are not expecting any change in short-term rates at this meeting. We will also get fresh employment data (current expectations: +180k job growth; 3.8% unemployment rate). The labor market has also been stronger than many have expected of late. Given the number of positive economic surprises recently, can the positive momentum continue? It seems likely given that the first estimate of 1Q24 GDP, via the Atlanta Fed's GDPNow, is now predicting 1Q24 GDP at 3.0% (first estimate), as of January 26, 2024.
Add it all up...
Stay invested. Stay diversified. Stay disciplined.
The views expressed herein are exclusively those of Orion Portfolio Solutions, LLC d/b/a Brinker Capital Investments a registered investment advisor, and are not meant as investment advice and are subject to change.
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