After an extremely strong finish to end 2023, including a stretch of 9 consecutive weekly gains, markets took a breather during the first half of January.
Economic data continues to be surprisingly strong, which creates questions around when the Federal Reserve (the Fed) may begin cutting interest rates. Comments by Fed Chairman Jerome Powell following December’s meeting led the market to believe cuts could be coming early in 2024. The newly released positive economic news is casting that timeline into doubt and impacting market returns.
On the labor front, the U.S. economy added 216,000 new jobs in December – exceeding expectations of most economists and registering the largest monthly gain in 3 months. Unemployment remained unchanged from the previous month at 3.7%.1 Jobs growth suggests an expanding economy, which markets fear could reignite inflation.
Inflation numbers for the month of December also surprised investors. Released yesterday, December’s Consumer Price Index (CPI) rose by 0.3% (expectations were for a 0.2% increase.) Core CPI, which removes food and energy prices (the two most volatile components of the index) also increased by 0.3%, above expectations.2
Quincy Krosby, LPL Financial’s Chief Global Strategist explained the impact of this data, “The last Fed minutes underscored that the path toward price stability remains uncertain, and today’s CPI report suggests that the Fed’s initial rate cut may be later than the market is hoping for…”
We will continue to monitor the situation closely, but in general, we believe the signs are pointing in a positive direction, despite these minor bumps in the road.
Reviewing returns for the first half of January, the markets were all flat. As of market close on January 12th, the Dow Jones Industrial Average (Dow) fell 104 points (0.28%), the S&P 500 gained 12 points (0.25%) and the NASDAQ Composite Index (NASDAQ) lost 40 points (0.27%).
1www.jhinvestments.com “Weekly Market Recap; Week ended January 5” January 8, 2024
2www.investors.com “Dow Jones Digs In As Bitcoin Gains Fade; Cathie Wood Snaps Up This Stock Amid 20% Dive” January 11, 2024
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