Weekly Market Performance — January 26, 2024

LPL Research provides its Weekly Market Performance for the week of January 22, 2024. Highlights for the week include continued gains for equities amid big tech strength, improving inflation expectations, and a rebound in energy prices.

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 01/26/24
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

Markets Mostly Higher: Stocks finished higher with gains for two of the four major indexes up more than 1%. Growth and communication services continue to outperform due to optimism surrounding artificial intelligence (AI). Tech earnings have been strong this quarter. According to Data Trek, the Magnificent Seven have witnessed an average upward earnings revision of almost 5% for this year, compared to the 1.3% decline for the S&P 500 Index. Energy had a positive week on the back of a rebound in energy prices.  Consumer discretionary lagged amid weaker-than-expected results from Tesla (TSLA).

Also, according to the most recent American Association of Individual Investors (AAII) survey, investor sentiment remains bullish; however, the percent of bulls declined marginally this week. Neutral and bearish investor sentiment increased to 34.5% and just over 26%, respectively.    

Fixed Income Mostly Higher: The Bloomberg Aggregate Bond Index rebounded for the second consecutive week amid resilient economic data. High yield bonds gained ground and benefitted from their equity market sensitivity, outperforming the broad bond market as equities advanced.     

Investment grade bond spreads, currently at 0.95%, are in the eighth percentile over the past decade (meaning spreads have been wider 92% of the time). LPL Research is not saying this is a floor for spreads, but it does highlight just how much good news is priced into the market currently. There are many issues that could cause spreads to widen, including Mideast tensions, lackluster earnings, disappointing inflation and Fed expectations, heavier-than-anticipated supply, U.S. election developments, among others.  

When spreads are as tight as they are now, identifying what may cause them to widen is less important than understanding that they are susceptible to any less-than-good news. That said, we expect spreads to remain well below the long-term average this year, which is a function of yields still being historically high, but we also believe they are priced for near perfection. However, we think the risk/reward favors the short-to-intermediate part of the corporate credit curve where yields are still relatively high but come with less interest rate and/or credit risk. 

Commodities Higher: Natural gas prices gained ground, reversing some of last week’s sell-off. Nevertheless, market participants remain concerned about oversupply, especially given milder-than-expected weather forecasts for most of the U.S.  

West Texas Intermediate crude oil finished solidly higher as demand uncertainty was offset by government data this week showing larger-than-anticipated declines in U.S. crude inventories and production. In addition, the geopolitical risk premium remains elevated amid escalating tensions in the Red Sea. Gold prices edged lower for the second straight week after struggling to break through key resistance near $2,075. An uptick in the dollar created additional headwinds for the yellow metal.

Economic Weekly Roundup      

December Personal Income & Spending: The Federal Reserve should be pleased with this latest inflation release, showing annual inflation at 2.6% and core inflation at 2.9%. Core services ex-housing inflation continues to ease.   

In addition, total goods prices fell 0.2% from a month ago, representing the third consecutive monthly decline. Food services rose over 0.3% from a month ago as consumers have an insatiable appetite for restaurant spending. Rents increased 0.4% month over month, representing the slowest gain since 2021. As more rental units come online, we should expect this line item to cool in the months ahead. 

Eurozone Business Activity: As demand wanes and price pressures increase given Middle East tensions, European business activity receded for an eight-straight month. That being said, the manufacturing outlook improved marginally in Germany and France, however the services outlook worsened.

U.K. PMI figures increased this month to their highest level in seven months. The business activity uptick has provided some investors hope for an improving economic landscape in 2024. 

China Remains an Issue: Given the fallout over COVID-19, the real estate crisis and general government mismanagement, Chinese markets have struggled. The Hong Kong Hang Seng market index has declined to levels not seen in two decades as the government is attempting to stabilize the yuan. 

 The government has attempted to portray better times for the world’s second-largest economy.  Beijing reported that China’s GDP grew by 5.2 percent in 2023, a low reading compared to the nation’s decades of high growth. Many market watchers remain skeptical of Beijing’s GDP report in addition to the future direction of the economy.   

Q4 GDP: The domestic economy decelerated from Q3, but growth was still robust and broad-based. Leading contributors of growth in Q4 were consumer spending, government spending, and net exports. In addition, the deceleration from the previous quarter was mainly from a slowdown in inventory investment, as businesses prepared for 2024. 

The personal savings rate fell to 4.0% from 4.2% in Q3 as consumers dipped into savings to fuel spending. Growth in 2024 will likely slow as the economy settles back into trend growth. And in the near term, the labor market will be key to consumer spending. As long as the job market holds up and disposable incomes stay healthy, the economy should avoid recession. 

Weekly Employment Report: Both continuing and initial claims came in above analysts’ expectations and the prior week’s reading, breaking lower-than-expected reports for three consecutive weeks. 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. 

Week Ahead

The following economic data is slated for the week ahead:       

• Tuesday: FHFA Home Price Index (Nov), S&P/Case-Shiller Home Price Index (Nov), consumer confidence (Jan), JOLTS Job Openings (Dec) 
• Wednesday: ECI civilian workers (Q4), FOMC Meeting   
• Thursday: Initial and continuing claims, unit labor costs (Q4), productivity (Q4), S&P Global Manufacturing (Jan), construction spending (Dec), ISM Manufacturing (Jan) 
• Friday: Hourly earnings (Jan), average workweek (Jan), manufacturing payrolls (Jan), nonfarm payrolls (Jan), private nonfarm payrolls (Jan), durable orders (Dec), factory orders (Dec), Michigan sentiment (Jan)