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Worries About Lingering Inflation Blur the Future (Weekly Insights 02/05/2024) Thumbnail

Worries About Lingering Inflation Blur the Future (Weekly Insights 02/05/2024)

Key Takeaways

  • Inflationary pressures remain sticky.
  • Consumer spending drives economic growth.
  • Developed equity markets lead performance.
  • Treasury yields inch higher amid Fed rate cut uncertainty.
  • Crude oil rallies on geopolitical tensions

The U.S. economy continues to exhibit resiliency as we move into 2024. As a result, the equity market rally that started in 4Q23 has carried into the new year. The S&P 500 notched a new record high while the MSCI AC World Index and the tech heavy Nasdaq are within ~5% of their record high. The Federal Reserve has signaled that their rate hiking cycle may be complete but they pushed back on rate cuts in March as the futures market had anticipated. As a result, bond yields moved modestly higher in January. In this weekly insights, we review the month of January from an economic and asset class perspective.     

  • Mixed signs on inflation: Consumer inflation remained sticky as the headline CPI Index surprisingly increased. However, the Fed’s preferred inflation gauge, PCE Core, increased at the slowest YoY pace (+2.9%) since March 2021.
  • Resilient labor market: The U.S. economy added the most jobs in a year in January (353K) and the unemployment rate remained unchanged (3.7%). Job openings also increased to the highest level in three months and wages grew at the fastest pace in 22 months.
  • Consumer confidence and spending strong: Consumer confidence as measured by the Conference Board rose to the highest level since December 2021. In addition, core retail sales rose at the fastest pace in five months.
  • Government deficit reaches new record: The U.S. deficit increased in the first quarter of its fiscal year, pushing the total deficit past $34 trillion for the first time on record.

Global Equities – Developed markets outperform: The MSCI AC World Index was higher for the third straight month led by gains in the U.S. and Europe.

  • Large-cap growth leads the U.S.: The Russell 1000 Growth Index was higher for the third month as the mega-cap tech trade failed to lose steam. While large cap value posted a modest gain as financials rebounded, small and midcap stocks declined for the month.
  • Developed markets outperform EM: The MSCI EAFE Index outperformed the MSCI Emerging Market Index by the most since October 2022 (~610bps).  
  • Emerging markets hurt by China: Chinese equity markets plummeted to near five-year lows as the region continues to struggle with a property crisis, weak economic data and lack of confidence.

Fixed Income – Bonds weaker: The Bloomberg Barclays Aggregate Index fell for the first time in three months as Treasury yields moved slightly higher amid strong economic data and the Fed’s more hawkish tone.

  • Short duration fixed income outperforms: Short maturity bonds (2YR) and floating rate instruments rallied as interest rates moved higher. 

Commodities – Oil prices lead rally: The Bloomberg Commodity Index was higher for the first time in three months driven by soft commodities and energy.

  • Softs lead: Soft commodities led by sugar aided the commodity gains on production declines in India.  
  • Energy rallies: The Bloomberg Energy Index rallied for the first time in four months led by crude oil. Increasing geopolitical tensions pushed crude oil prices higher.

© 2023 Authored by Megan Horneman, Chief Investment Officer, Verdence Capital Advisors, LLC.   Reproduction without permission is not permitted. The indexes presented are unmanaged portfolios of specified securities and do not reflect any initial or ongoing expenses nor can it be invested in directly. An investment’s portfolio may differ significantly from the securities in the index.
Forty W Advisors is a dba of MacroView Investment Management, LLC (“FORTY W” or “we”, “our”, “us”). FORTY W believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. FORTY W has not independently verified third-party sourced information and data. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice.  Past performance is not a guarantee of future results.    Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product or any non-investment related content, made reference to directly or indirectly in these materials will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any discussion or information contained in this report serves as the receipt of, or as a substitute for, personalized investment advice from FORTY W.