Weekly Market Performance — February 23, 2024

LPL Research provides its Weekly Market Performance for the week of February 19, 2024. Large-cap stocks advanced as NVIDIA's earnings exceeded expectations, spurring continued artificial intelligence (AI) momentum. The Russell 2000 Small Cap Index declined given concerns over the Federal Reserve (Fed) holding firm on interest rates. Fed policy also weighed on bond yields, which continued to advance as prices declined. Natural gas rallied 9%, as a major natural gas producer announced significant production cuts.

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 02/23/24
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

Markets Mostly Higher: The S&P 500 and Nasdaq Composite Indexes finished higher following strong earnings from NVIDIA (NVDA), spurring additional Artificial Intelligence (AI) investor enthusiasm. The company delivered against very elevated expectations, as it reported fourth-quarter net revenue of $22.1 billion and earnings of $5.16 a share, handily beating expectations.

International markets posted solid returns as European private sector activity increased to an eight-year high. In addition, Japan’s Nikkei reached its own record high as it transcended its previous 1989 level, just before the country fell into decades of a deflationary spiral. Global investors have migrated from China’s markets towards a focus on Japan, especially in the wake of recent corporate focus on investor returns.

According to the most recent American Association of Individual Investors (AAII) survey, investor bullish sentiment increased from 42% to 44% as neutral and bearish investor sentiment marginally declined. The percent of bullish investors remains well above the long-term historical average of 37.5%.

Fixed Income Mostly Higher: The Bloomberg Aggregate Bond Index lost ground for the third straight week as rates rose following the uptick in inflation in January. Investment grade and high yield corporate bonds finished higher as large cap equities advanced.

The U.S. Treasury Department has significantly increased coupon auction sizes since the August refunding and announced increases earlier this year for the February through April quarter, as supply continues to adjust for rising deficits and Fed redemptions.

With that said, the current increase in supply will occur amid a backdrop of slowing inflation and expectations of Fed rate cuts this year. Investors might require some concessions to digest the larger issues, tamping down bid-to-cover ratios and nudging auction tails higher, but the improved outlook for rates this year should attract some additional demand from the sidelines.

Commodities Mostly Lower: West Texas Intermediate prices declined, reversing two weeks of marginal gains, with oil trading near the closely watched 200-day moving average (dma). Natural gas prices witnessed a sixth consecutive down week amid concerns over challenging supply-demand dynamics. Chesapeake Energy (CHK), one of the largest U.S. producers of natural gas, announced major production cuts, causing natural gas prices to rebound from a three-and-a-half-year low reached this week.

Gold continues to hold support above $2,000. The yellow metal advanced amid mild weakness in the dollar and higher rates. The U.S. dollar witnessed its first weekly decline in almost two months.

Economic Weekly Roundup

January Existing Home Sales: Existing home sales increased the highest since August last year as mortgage rates are below the recent peak in October. Supply of existing homes remains historically low, as homeowners with low fixed-rate mortgages shelter in place. Median prices fell for the seventh month but kept overall affordability down to record lows. In addition, all cash deals gained momentum, making up over 30% of sales in January.

The low supply of existing homes will likely incentivize an opportunity for homebuilders eager to meet consumer demand amid lower rates. As the Fed prepares for their first rate cut in years, investors should expect mortgage rates to fall by the end of this year, providing a catalyst for an improving residential real estate market later this year.

Japan's January Trade Balance: Japan's exports increased to a record high last month as U.S.- bound auto shipments were strong, helping the nation reduce its trade deficit from a year earlier to 1.76 trillion yen ($11.74 billion). In addition, energy imports declined. Exports increased almost 12% percent, marking the second straight month of growth despite concerns over the global economy.

February Eurozone Consumer Confidence: Consumer confidence in the Eurozone increased this month. Some believe this could mean the region’s economic challenges are receding as price pressures ease closer to manageable levels. However, confidence remains well below the long-term average.

Weekly Employment Report: Initial and continuing claims came in below analysts’ expectations and the prior week’s reading. LPL Research continues to believe the labor market is expected to further loosen over the coming months as companies respond to slowing demand, partly driven by the lagged effects of tighter monetary policy.

The Week Ahead

The following economic data is slated for the week ahead:

• Monday: Building permits (Jan), new home sales (Jan)
• Tuesday: Durable orders (Jan), FHFA Home Price Index (Dec), S&P/Case-Shiller Home Price Index (Dec), consumer confidence (Feb)
• Wednesday: Revisions to Q4 Gross Domestic Product (GDP), wholesale inventories (Jan)
• Thursday: Initial and continuing unemployment claims, BEA Total Light Vehicle Sales