Last week was another solid week for investors. The stock market moved higher again, including more new all-time highs in a couple major indices, and the economic data did not disappoint.
Let’s first talk about the new highs. The tech-heavy Nasdaq Composite finally joined the new all-time high (ATH) club with the other TV benchmarks (the S&P 500 and Dow Jones Industrials) by hitting new all-time price highs last Thursday. This was the first ATH for the index since November 2021. That ended the fourth longest streak on record without closing at an ATH. Also hitting new highs last week was the Russell 2000, which is a benchmark for small cap stocks. It snapped its second longest stretch of not hitting a new ATH.
Economic data was also supportive last week. First, the inflation data came in as expected and did not negatively surprise as some other inflation data did in the weeks prior. “Core” prices, which exclude the ever-volatile food and energy categories, are now up 2.8% versus a year ago. This result, coming in below 3% and at expectations, was well received by investors. Also notable, however, is that the Fed also follows the “Super Core” index, which is services only (no goods), excluding food, energy, and housing. That measure did rise 0.6% in January and is now up 3.5% versus a year ago. This is well above the Fed’s preferred 2% target. Second, 4Q23 GDP was revised lower last week (to 3.2%), but upon closer inspection, the drop was due to net exports and lower inventories. Other measures, such as personal consumption and business investment, revealed more growth than originally estimated.
As for this coming week, it’s a big week for employment data with fresh prints of ADP employment, job openings, nonfarm payrolls and the US unemployment rate being released. The unemployment rate is expected to be 3.7%.
Given all the news all-time price highs, the weekly AAII Sentiment Survey is now on its longest streak of above-average bulls since February of 2011 (16 straight weeks). Historically, when investor sentiment is extremely bullish, the overall stock market has produced below-average returns moving forward. Contrarians will also note that the Magazine Cover Indicator might be triggered given the recent Economist magazine cover asking “How High Can The Markets Go?” Other contrarians will note that Amazon will now be joining the Dow Jones Industrial Index.
Last week colleague and Orion Chief Behavioral Officer Daniel Crosby tweeted on X a quote from Seneca: “If you would not have a man flinch when the crisis comes, train him before it comes.” As Dr. Crosby states, “this is good wisdom for how we help inoculate our clients against the inevitability of bad markets.” Given the valuations of the overall market, including among the largest names that are dominating the indices of late, this seems like wise counsel.
Add it all up...
Stay invested. Stay diversified. Stay disciplined.