All three major stock market indices declined last week, snapping their nine-week winning streaks. The Dow Jones Industrial Average dipped .59% to 37,466. The Standard & Poor’s 500 Index dropped 1.52% to 4,697. The tech-heavy NASDAQ Composite fell the most, shedding 3.25% to 14,524.
We attribute much of the decline to profit taking after the market’s strong performance last year. However, investors are also weighing if, when, and how much the Federal Reserve will cut interest rates going forward. Stock prices rallied nicely during the last couple months of 2023, with the S&P 500 coming within inches of its all-time high, in anticipation that interest rate cuts are on the way. Currently, according to the CME FedWatch Tool, the probability is nearly 70% the Federal Reserve will cut interest rates at their March meeting.
The U.S. Department of Labor reported the economy added 216,000 jobs last month, well ahead of expectations for an increase of 155,000. The unemployment rated held steady at 3.7% (also better than forecast). While the headline numbers were stronger-than-expected, job gains for the prior two months were revised lower, and some of the internals were on the weaker side. With the totality of the report being somewhat mixed, it unlikely did much to influence the Fed one way or another on the timing and scope of interest rate cuts.
Looking to the week ahead, it’s time for another earnings season! Earnings reports by several big banks get things started. JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup are all scheduled to report their numbers on Friday. Regarding overall expectations for earnings: For the fourth quarter of 2023, the estimated (year-over-year) earnings growth rate for the S&P 500 is 1.3%, which would mark the second straight quarter of year-over-year earnings growth for the index, according to FactSet.
In addition to earnings this week, financial markets and the Federal Reserve will be closely watching some important inflation data. The U.S. Bureau of Labor Statistics is scheduled to release the Consumer Price Index on Thursday, followed by the Producer Price Index on Friday, where expectations are for year-over-year increases of 3.2% and 1.3% respectively. Higher-than-expected inflation readings would be a headwind to the stock market. Cooling inflation would be welcome news, increasing the likelihood of interest rate cuts. Overall, low inflation is good for both Main Street and Wall Street!
As always, please contact us with any questions you may have or if you would like to set up a meeting.
All the best – Southport Station Financial Management, LLC