Last week was loaded with notable economic and earnings news, and even included the worst one-day sell-off in the stock market in months, but the S&P still closed last Friday at new all-time highs. The economy and stock market continue to display positive momentum.

Regarding the economy, last Friday’s Bureau of Labor Statistics (BLS) headline payroll numbers were strong as job growth surged +353k, with upward revisions to prior months. The unemployment rate held at 3.7%. Wage growth also surprised to the upside at +4.5% year-over-year. While some economists have nitpicked the numbers a bit, it was unquestionably a positive report. In turn, the Atlanta Fed’s GDPNow is now predicting 1Q24 inflation-adjusted GDP at 4.2% (up a whopping 1.2% over the last week).

Last week was also the latest Federal Reserve meeting. As expected, there were no cuts to short-term rates. The Fed once again held rates steady and indicated that they were willing to hold rates higher until inflation was closer to their 2% target. Fed Chair Jerome Powell was also interviewed Sunday night and fortified that view. With some short-term inflation data appearing to be troughing, and the economy stronger than most have expected, it is not a surprise that many buy- and sell-side analysts are starting to say that the Fed will “likely” cut short-term rates instead of “will” cut short-term rates soon.

Nonetheless, according to the CME FedWatch Tool, the market is currently pricing a near 40% chance that the Fed cuts rates at their next Fed meeting on March 20th. The market is still pricing nearly a 70% chance that short-term rates drop by 1% or more by November 7th. Despite the strong economic numbers last week, and the shift in Fed expectations, interest rates did surprisingly drop last week. The 10-year Treasury yield ended the week at 4.03% (down 13 bpts from the week before).

As for the economic calendar this week. This week is also another big one for corporate earnings, including important reports in health care and consumer stocks. Last week, by the way, was a doozy for earnings reports. Microsoft, Alphabet (i.e, Google) and Apple disappointed, but Meta (Facebook) and Amazon had blow-out earnings.

Despite all the positive momentum, there are experienced voices still raising caution. One is a keynote speaker at Orion’s upcoming Ascent conference, Jeffrey Gundlach. Last week, Gundlach said Goldilocks talk makes him nervous and likely sees a recession. Still, others such as Research Affiliates’ Rob Arnott warned of the ‘big market delusion’ in AI stocks. Arnott believes that the economic impact from AI is real, but the stock prices have likely far outpaced what AI can deliver. Arnott uses the internet enthusiasm in the late nineties as a frame of reference.

Add it all up...


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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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