Weekly Market Performance — January 19, 2024

LPL Research provides its Weekly Market Performance for the week of January 15, 2024. Highlights for the week include a new record high for the S&P 500, bolstered by strong gains for big tech, lower inflation expectations, and a sell-off in natural gas prices.

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 01/19/24
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

Markets Mostly Higher: Most U.S. equity markets advanced, sending the S&P 500 to a fresh all-time high for the first time in over two years. Growth and technology stocks outperformed on optimism surrounding artificial intelligence and more evidence of a resilient U.S. economy and lower inflation.

Global semiconductor giant Taiwan Semiconductor’s (TSM) bullish outlook boosted chip stocks and Apple (AAPL) shares benefited from an analyst upgrade this week. In addition, NVIDIA (NVDA) and Microsoft (MSFT) reached record highs.

According to the most recent American Association of Individual Investors (AAII) survey, investor sentiment remains bullish; however, the percent of bulls declined sharply. Neutral and bearish investor sentiment increased from over 27% to under 33% and just over 24% to just under 27%, respectively.

The latest Bank of America global fund manager survey reported an increasingly bullish stance on small cap equities, which has not been seen in almost three years. Some are citing the fourth quarter outperformance by small caps, particularly small cap value, as the reason for the increased interest, as fund managers may have a fear of missing out (FOMO) and chased these recent gains.

Moreover, some point to potentially lower and stable interest rates, the resilient economy, and attractive valuations as reasons for a positive outlook for the asset class. The Russell 2000 Index trades at price-to-book levels vs. the S&P 500 Index not seen since 1999.

We remain skeptical of the bullish narrative for small caps, as many of these companies face debt refinancing risks at higher interest rates.

Additionally, LPL Research continues to favor the growth style over value and U.S. over international and emerging markets for equity allocations.

Fixed Income Lower: The Bloomberg Aggregate Bond Index ended lower this week as resilient economic data caused markets to unwind some of the extreme rate cut expectations priced into the federal funds markets this year, which pushed the 10-year Treasury yield about 10 basis points (0.2%) higher while the 2-year yield surged more than 25 basis points. High yield bonds lost ground this week but did benefit some from their equity market sensitivity and outperformed the broad bond market slightly as equities rose.

Commodities Sluggish: Natural Gas prices fell sharply for the week, reversing two straight higher weeks as colder weather drove demand. Market participants sold off futures amid a smaller-than-expected storage withdrawal, leading to some concerns about oversupply. West Texas Intermediate crude oil finished higher as demand uncertainty and strong production were offset by an implied geopolitical risk premium. China’s economic picture remains challenged and U.S. production continues at a record pace. Gold prices edged lower after struggling to break through key resistance near $2,075.

Economic Weekly Roundup

December Housing Starts: Building permits, a leading indicator of future construction, accelerated in December as builders took advantage of limited inventory while buyers benefited from lower mortgage rates. We believe the decline in mortgage rates from their peak in October should be supportive for the residential market in 2024. The low supply of existing homes on the market is causing potential buyers to strongly consider new construction, setting up a potentially attractive investment opportunity for homebuilders in 2024.

December Retail Sales: December online sales skyrocketed in December, jumping 9.7% from a year ago as consumers focused their attention on non-store shopping. Total retail sales increased 0.6% from last month and up 5.6% from last year. Restaurant spending grew by over 11% from last year as consumers seem unfazed by higher restaurant prices. That said, spending was roughly unchanged from last month.

U.K. Inflation Surprises to the Upside: U.K. inflation unexpectedly increased to 4% year-over-year last month. This represents the first month that the annual consumer price index has increased since February 2023. Alcohol and tobacco were the largest contributors to the increase, as the biggest downward contribution came from food and non-alcoholic beverages.

U.K. Core Consumer Price Index, which excludes volatile food, energy, alcohol, and tobacco prices, was reported at an annual 5.1% increase, above a 4.9% Reuters forecast. The reading came in unchanged from November. Travel and transportation were the largest contributors to the core reading.

University of Michigan Sentiment: Inflation expectations plummeted this month, giving the Fed more support for a prompt easing of monetary policy. Inflation expectations over the next 12 months dipped to 2.9%, the lowest since the end of 2020. Certainly, this is good news for the Fed. Sentiment spiked as consumers felt more comfortable about where the economy is headed. Risk appetite improved as investors considered bringing cash off the sidelines and into capital markets.

Weekly Employment Report: Both continuing and initial claims came in below analysts’ expectations and the prior week’s reading for the third consecutive week. LPL Research believes 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: Leading indicators (Dec)
• Wednesday: Purchasing Managers’ Index (PMI) Composite (Jan), S&P Global PMI Composite (Jan)
• Thursday: Initial and continuing jobless claims, durable orders (Dec), Gross Domestic Product (GDP) (Q4), wholesale inventories (Dec), new home sales (Dec)
• Friday: Personal Consumption Expenditures (PCE) (Dec), personal income (Dec), PCE deflator (Dec), pending home sales (Dec)