Market Update: S&P Services, Consumer Credit, CPI Seasonal Factor Revisions

What We Are Watching This Week

  • S&P Services PMI
  • Consumer Credit
  • CPI Seasonal Factor Revisions

Highlights From Last Week

  • US Fed Rate Announcement
  • ADP Employment Report
  • US Nonfarm Payrolls
  • US Consumer Sentiment

The major stock market indexes had a mixed week as they responded to earnings reports and economic data. The S&P 500 and Dow Jones Industrial Average reached intraday highs, but small-cap indexes saw losses as did the TSX with oil falling over 7% in the week. During the busiest week of the fourth-quarter earnings reporting season, significant tech companies played a pivotal role in influencing major market indexes. The S&P 500 and Nasdaq Composite Index experienced a notable drop on Wednesday due to disappointing earnings guidance from Microsoft, Alphabet (Google’s parent company), and chipmaker Advanced Micro Devices. However, the benchmarks rebounded on Thursday, recovering a significant portion of their losses, thanks to positive earnings surprises from, Meta Platforms (formerly Facebook), and Apple. In Europe, the pan-European STOXX Europe 600 Index, in domestic terms, had a relatively flat week. Major European stock indexes showed mixed results: France’s CAC 40 Index fell by 0.55%, Germany’s DAX decreased by 0.25%, and the UK’s FTSE 100 Index declined by 0.26%. On the other hand, Italy’s FTSE MIB saw a gain of 1.11%.

In November, home prices in the 20 largest U.S. cities reached a record high for the 10th consecutive month, primarily due to a limited supply of homes for sale. The S&P CoreLogic Case-Shiller 20-city house price index increased by 0.1% compared to the previous month and saw a 5.4% year-over-year increase. The national home price index also rose by 0.2% in November and showed a 5.1% yearly increase. Both the 20-city and national indexes are currently at their highest levels ever recorded. Detroit had the highest year-over-year price gains, with an 8.2% increase, making it the top-performing real estate market for three consecutive months. However, Portland was the only city where home prices declined in November.1

 A separate report from the Federal Housing Finance Agency indicated a 0.3% increase in home prices in November and a 6.6% yearly rise. In December 2023, the median resale home price was $382,600, while newly constructed homes had a median price of $413,200. 2

In January, The Conference Board Consumer Confidence Index® increased to 114.8, its highest level since December 2021, marking the third consecutive monthly rise. The Present Situation Index, which measures current business and labor market conditions, surged to 161.3 from the previous month, while the Expectations Index, which gauges short-term outlook, improved to 83.8. This rise in consumer confidence can be attributed to factors such as slower inflation, anticipated lower interest rates, and favorable employment conditions. Consumers across all age groups showed increased confidence, especially those aged 55 and older, and most income groups saw improved confidence except for households earning over $125,000. While inflation concerns persist, expectations for a U.S. recession in the next 12 months eased. Assessments of the present situation improved in January, reflecting positive views of business conditions and employment. Expectations for the next six months increased slightly, with reduced pessimism about future business conditions, labor markets, and income prospects. Additionally, the expectation of rising interest rates decreased, and inflation expectations reached a three-year low. Consumer views of their expected family financial situation remained optimistic. Buying plans for autos, homes, and big-ticket appliances saw a slight decline on both a monthly and six-month basis.3

In January, American businesses added 107,000 new jobs, falling short of the expected 150,000 according to ADP. This reflects a slowdown in hiring since the previous fall, although both ADP and government reports indicate a consistent trend of slower job growth compared to early 2023. Notable job gains were seen in leisure, hospitality, construction, and transportation, while the information sector, which includes media, saw employment decline. Wage growth has also slowed slightly, with a 5.2% increase for those in the same job over the past year and a 7.2% increase for job switchers. Despite higher interest rates having a limited impact on the economy, businesses are adding jobs at a more gradual pace. Slowing inflation might lead the Federal Reserve to consider cutting interest rates in the near future, with wage trends playing a crucial role in this decision. 4

The Federal Reserve has shifted to a more neutral stance, as its recent policy statement no longer hints at further interest rate increases. Instead, the focus has shifted to how long the federal funds rate will remain at its current level. Rate cuts are not on the immediate horizon, and the Fed intends to wait until it gains more confidence in achieving its inflation target before considering rate reductions. The statement also removed language about “any additional policy firming,” now referring to “any adjustments.” The Fed’s view of the U.S. economy remains positive, supported by strong fourth-quarter GDP growth, although it acknowledges that inflation remains higher than desired.5

On Thursday, the US Department of Labor reported that in the week ending January 27, the number of Americans filing for unemployment benefits reached a nearly three-month high of 224,000, suggesting a possible softening in the strong labor market. Initial jobless claims increased by 9,000 from the prior week, marking a return to more typical levels after holiday-related fluctuations. Additionally, the number of people receiving unemployment benefits increased by 70,000 to 1.9 million, the highest since mid-November.6

In January, the U.S. manufacturing activity, as measured by the Institute for Supply Management (ISM) index, increased to 49.1%, up from the previous month’s 47.1% and the highest level since October. The latest reading exceeded economists’ expectations of a rise to 47.2%. Despite the improvement, any reading below 50% indicates a contracting economy, and manufacturing has seen contraction for 15 consecutive months. The ISM new-orders index expanded to 52.5%, marking only the second expansion in 20 months, while production also showed growth at 50.4%. However, new export orders declined to 45.2%, reflecting continued weakness in the sector. Prices paid increased to 52.9%, reversing a trend of declining raw-material prices in recent months. Overall, while national manufacturing showed some improvement, regional surveys remained weak in January. The U.S. manufacturing sector has displayed signs of improvement, but economists caution that it will require time for the sector to stabilize, even if the Federal Reserve decides to cut interest rates. According to Timothy Fiore, chair of the ISM’s manufacturing survey committee, the January data indicate the start of a new growth cycle, although it is still in its early stages. He attributed this improvement to the Federal Reserve’s signal of potential rate cuts in 2024, which has positively influenced investment spending.7

In January, the U.S. labor market had a strong start to the year, surpassing expectations with the addition of 353,000 jobs, despite forecasts of a more modest increase. Surprisingly, the unemployment rate remained unchanged, defying predictions of a slight uptick. Additionally, wage growth accelerated, with average hourly earnings rising by 4.5% year-over-year, exceeding expectations and marking an increase from December’s 4.1%. On a monthly basis, wage growth also outperformed expectations, increasing by 0.6% compared to December’s 0.4%. However, there was a slight decline in the average workweek, dropping by 12 minutes to 34.1 hours in January, which raised concerns about potential weaknesses in the labor market, as reduced work hours can signal hiring challenges. The monitoring of wage growth is crucial, as rapid increases could affect inflation rates and potentially complicate the Federal Reserve’s efforts to manage inflation, especially if monetary policy is adjusted prematurely. While the Employment Cost Index for the fourth quarter of 2023 showed minimal gains, Federal Reserve Chair Jerome Powell emphasized that restoring wage growth to normal levels will be an ongoing process. The strong job growth in January was driven by sectors such as professional and business services, healthcare, retail trade, and social assistance. The professional and business services sector added 74,000 jobs, far surpassing the 2023 monthly average. Healthcare saw an increase of 70,000 jobs, slightly exceeding the 2023 monthly average, while the retail sector added 45,000 jobs in January, although it has experienced limited net growth since early 2023. Government employment continued to rise, gaining 36,000 jobs in January, primarily led by local government employment, excluding education. On the other hand, the leisure and hospitality sector, which had seen significant job growth in the previous year, remained relatively stable in January with no substantial overall employment changes.8

Consumer sentiment in January reached its highest level since the summer of 2021, with the final reading of the University of Michigan sentiment survey at 79.0, up from the preliminary reading of 78.8 earlier in the month and a significant increase from December’s 69.7. This improvement was driven by reduced inflation and a better economic outlook. The survey assesses how Americans perceive their personal finances and the broader economy. Although sentiment has improved, it remains below pre-pandemic levels around 100. Details show a decline in the gauge measuring consumers’ views of the current economy (81.9 from an initial 83.3) but still higher than December’s 73.3. Expectations for the next six months improved to 77.1 from 75.9 in January and 67.4 in December. Americans expect inflation to average 2.9% in the next year, the lowest in four years, despite the current inflation rate of 3.4%, which has slowed significantly in the past year and a half.9

In summary, while inflation is decreasing, the economy is growing faster than expected by the Federal Reserve. This strong economy may pose challenges for the Fed in achieving its 2% inflation target and could potentially delay interest rate cuts. However, it might also help the U.S. avoid a predicted recession.

 WKYear to Date
S&P400 Mid-cap0.12%-0.52%










Important Information:  

Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.  

Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.  

Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.  

The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions. 

To contact Sightline and request a full Smart Money Market Report, fill out the contact form below

CALL US AT 866.889.1909

Please note we only serve clients who reside in Canada.
I would like to receive ongoing news and information from Sightline Wealth Management

Recent Articles