Market Update: U.S. FED Announcement, ADP Employment Report, US Consumer Sentiment

What We Are Watching This Week 

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

Highlights From Last Week 

  • US Durable Goods 
  • Bank of Canada Rate Announcement 
  • Personal Spending  
  • Personal Consumption Expenditures and Core PCE

Stocks had a positive week, with the Dow Jones Industrial Average and S&P 500 reaching new all-time highs. This marked the 12th weekly gain out of the last 13 for the S&P 500. The small-cap Russell 2000 Index outperformed in the week but remained nearly 20% below its all-time high. The TSX bounced 1%, with oil jumping over 6% in the week. The STOXX Europe 600 Index ended the week 3.11% higher in Europe, driven by strong corporate results and China’s announcement of additional stimulus measures. The European Central Bank’s decision to keep interest rates unchanged and signal a more dovish outlook also boosted stocks. Major European stock indexes, including France’s CAC 40, Germany’s DAX, Italy’s FTSE MIB, and the UK FTSE 100, saw gains during the week. 

On Monday, the Conference Board reported that despite the leading indicators of the US economy falling for the 21st consecutive month in December, a recession, which was widely predicted, does not seem imminent. The leading index only decreased by 0.1%, the smallest decline since the negative trend began in March 2022, beating economists’ expectations of a 0.3% drop. Six out of the ten indicators showed improvement in December. Historically, similar prolonged negativity led to recessions in 1973-1975 and 2007-2009; the economy has not followed the usual patterns since the 2020 pandemic. The US economy has continued to grow despite high inflation and rising interest rates, with potential recession outcomes still debated among economists. The Conference Board maintains its forecast of negative GDP growth in the second and third quarters of 2024, followed by a late-year recovery.1 

The US economy started the year on a positive note, showing accelerated growth in January according to two S&P business surveys, suggesting that a recession remains distant. The S&P flash US services PMI reached a seven-month high of 52.9, while the manufacturing PMI hit a 15-month high of 50.3, marking the first time it has been positive in over a year. These numbers above 50 indicate economic growth. The surveys provide early insights into the state of the US economy for the new year, indicating steady growth. Despite some softening in late 2023, the economy was estimated to have expanded at a healthy 2% pace in the fourth quarter. The Federal Reserve’s likely halt in interest rate hikes and the increasing possibility of rate cuts could further support the economy. Key indicators such as new orders, business confidence, and employment showed positive trends, while inflation appeared to be receding. The one drawback was reduced production among manufacturers focused on reducing excess inventories. Overall, these surveys point to resilient economic growth and diminishing inflation pressures.2 

On Wednesday, The Bank of Canada maintained its overnight rate at 5% alongside its policy of quantitative tightening. Globally, economic growth is slowing, with inflation easing in most economies. While the US has seen more robust growth, it is expected to slow in 2024 due to weakened consumer spending and business investment. The euro area is experiencing a mild contraction, and China faces activity constraints due to low consumer confidence and policy uncertainty. Oil prices are $10 per barrel lower than previously assumed. The Bank forecasts global GDP growth of 2.5% in 2024 and 2.75% in 2025. In Canada, the economy has stalled, but growth is expected to strengthen gradually in mid-2024. Inflation is anticipated to remain around 3% in H1 2024 before gradually easing toward the 2% target by 2025. The Bank is focused on normalizing its balance sheet and monitoring various factors to restore price stability for Canadians.3 

In the fourth quarter of 2023, the US real Gross Domestic Product (GDP) grew at a robust annualized rate of 3.3%, surpassing the consensus forecast of 2.0%. This growth was primarily driven by strong consumption, supported by government spending and net exports. Over the whole year, Real GDP expanded by 2.5%. Key trends included a significant increase in consumption, driven by both goods and services, supported by a rise in real disposable income. However, concerns arose due to rising household debt levels and low savings. Investment growth was subdued due to high-interest rates, with some business investment improvements but cooling in structures and residential sector investments. Net exports exceeded expectations, and government spending continued to rise. This data suggests that Federal Reserve interest rate cuts are less likely in the near term, although some cuts may be anticipated in June 2024 as inflation cools.4 

On Thursday, the US Department of Labor reported that in the week ending January 20, there were 214,000 seasonally adjusted initial unemployment claims, marking a 25,000 increase from the previous week, which was revised to 189,000. The 4-week moving average decreased to 202,250. The total number of continued weeks claimed for benefits in all programs for the week ending January 6 was 2,148,140, up by 17,359 from the previous week. In the same week in 2023, 1,935,736 weekly claims were filed for benefits in all programs.5 

The US Census Bureau’s report on durable goods manufacturers’ shipments, inventories, and orders for December shows that new orders for manufactured durable goods remained virtually unchanged at $295.6 billion, following a 5.5% increase in November. When excluding transportation, new orders increased by 0.6%, and excluding defense, they increased by 0.5%. Primary metals, up 1.4%, drove the increase in new orders. Shipments of durable goods decreased by 0.3% to $282.2 billion, with transportation equipment leading the decline. Unfilled orders increased by 1.3% to $1,393.4 billion, primarily driven by transportation equipment. Inventories of durable goods increased by 0.4% to $527.0 billion, with transportation equipment leading the rise. These figures suggest some stability in the durable goods sector, with new orders remaining steady, shipments slightly declining, unfilled orders increasing, and inventories showing a moderate rise in December.6 

In December, personal income in the United States increased by a 0.3% monthly growth rate, according to data from the Bureau of Economic Analysis. Disposable personal income (DPI), which accounts for personal income after personal current taxes, increased by 0.3%, while personal consumption expenditures (PCE) rose by 0.7%. The PCE price index increased by 0.2% in December, with a similar increase of 0.2% when excluding food and energy. Real DPI increased by 0.1%, and real PCE showed more robust growth at 0.5%, driven by a 1.1% increase in spending on goods and a 0.3% increase in spending on services. The rise in PCE reflected a $75.6 billion surge in spending on services, including financial services, health care, and recreation services. Spending on goods also rose by $58.4 billion, with significant contributions from motor vehicles, nondurable goods like prescription drugs, and energy goods. Personal outlays, which include PCE, personal interest payments, and personal current transfer payments, increased by $134.7 billion in December. Personal savings amounted to 3.7% of disposable personal income. The PCE price index increased by 0.2% from the preceding month, with goods prices decreasing by 0.2% and services prices rising by 0.3%. On a year-on-year basis, the PCE price index for December showed a 2.6% increase. Services prices increased by 3.9% compared to the same month the previous year, while goods prices saw a marginal increase of less than 0.1%. The 0.5% increase in real PCE for December reflected a strong uptick of 1.1% in spending on goods and a 0.3% increase in spending on services. Recreational goods and vehicles, health care, financial services, and insurance were among the significant contributors to the growth in real PCE.7 

These economic indicators suggest a positive personal income, consumption, and price trend, with significant contributions from the goods and services sectors. While the economy has shown resilience, monitoring factors such as inflation and savings rates remain essential for understanding the broader economic landscape. 

   WK  Year to Date  
Dow  0.65%  1.11%  
S&P500  1.06%  2.54%  
Nasdaq  0.94%  2.96%  
S&P400 Mid-cap  0.83%  -0.64%  
Russell  1.75%  -2.40%  
TSX  1.00%  0.80%  
Oil   6.60%  9.00% 


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. 

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