What We Are Watching This Week 

  • US Durable Goods 
  • Personal Spending  
  • Personal Consumption Expenditures and Core PCE.  

Highlights From Last Week 

  • US Retail Sales 
  • US Industrial Production 
  • US Housing Starts and Home Sales 
  • Canadian CPI  

Stocks ended mostly higher over the U.S. holiday-shortened week, although the advance was narrow—an equally weighted version of the S&P 500 Index recorded a modest loss, as did the TSX—and heavily focused on growth stocks. Information technology stocks outperformed, helped by a rally in semiconductor shares. Artificial intelligence (A.I.) chip giant NVIDIA was strong, as was rival Advanced Micro Devices (AMD).  

The pan-European STOXX Europe 600 Index closed the week down by 1.58% in local currency terms. This decline was influenced by comments from central bank policymakers, which reduced market expectations for an early interest rate cut. Major European stock indexes also saw losses, with France’s CAC 40 Index falling by 1.25%, Germany’s DAX declining by 0.89%, Italy’s FTSE MIB easing by 0.61%, and the U.K.’s FTSE 100 Index losing 2.14%. The week saw a generally softer performance across these major European stock indices. 

On Tuesday, Statistics Canada reported that the annual inflation rate increased in December, reaching 3.4%, up from 3.1% in November, in line with economist predictions. This surge in inflation has persisted above the Bank of Canada’s 1-3% target range since March 2021. Despite the data, the likelihood of the Bank of Canada initiating interest rate cuts in March decreased to one-third, down from nearly 50% before the release. However, there remains a significant chance of a 25-basis-point reduction in April. Excluding energy and food prices, annual inflation slowed to 3.4% from 3.5% in November.1 

The New York Federal Reserve’s Empire State business-conditions index, a measure of manufacturing activity, recorded a significant drop in January, reaching its lowest level since the onset of the COVID-19 pandemic in 2020. The index plummeted by 29.2 points to a negative 43.7, the second-lowest reading ever, with the most substantial decline occurring during the height of the pandemic in May 2020. Over the past two months, the index has dropped by 58.2 points, mainly due to a decline in new orders, which is a predictor of future business activity. Notably, the current reading is even lower than any point during the severe 2007-09 recession. However, historical data suggests that significant declines in the Empire State index tend to be short-lived. Key details from the report include a sharp drop in new orders by 38.1 points to a negative 49.4, decreased shipments by 24.9 points to a negative 31.3, shrinking unfilled orders, shortened delivery times, and reductions in employment and hours worked. On a slightly positive note, optimism about future business conditions increased modestly, with the index for future business conditions rising by 7 points to 18.8. Additionally, there was an improvement in investment plans, with the capital-spending index increasing by 10 points to 13.7. This report raises concerns about potential economic troubles in the U.S. economy.2 

Retail sales in the United States increased by 0.6% in December, exceeding economists’ expectations of a 0.4% rise and concluding a robust holiday shopping season. When combined with November’s 0.3% growth, the data suggests a stronger-than-anticipated holiday shopping period. Retail sales, which comprise a significant portion of consumer spending, grew by 5.6% in 2023, nearly double the inflation rate. This positive retail report strengthens the argument for the Federal Reserve to delay interest rate cuts due to the economy’s continued strength, reducing the immediate risk of a recession. Department stores (3% growth), online retailers (1.5% growth), clothing stores (1.5% growth), and auto dealers (1.1% growth) were the standout performers in December. Sales declined at furniture and appliance stores, likely due to a sluggish housing market influenced by high-interest rates. Receipts also dropped at pharmacies, home centers, and gas stations, partially due to lower oil prices. Restaurant sales remained flat, reflecting economic conditions and job security concerns.3 

In December, industrial production in the United States increased by 0.1%, surpassing expectations of a 0.1% decline, as reported by the Federal Reserve. Capacity utilization remained steady at 78.6%, aligning with forecasts. Capacity utilization measures the extent to which factories, mines, and utilities are operating. Key details reveal that manufacturing rose by 0.1% in December, following a 0.2% gain in the previous month. Motor vehicle and parts output increased by 1.6%, primarily due to the return of striking auto workers, following a 7.4% jump in the prior month. Excluding autos, total industrial output remained flat, with manufacturing output down by 0.1%. Utilities output decreased by 1% in December due to milder weather, while mining output, which includes oil and natural gas, rose by 0.9% after a 1% drop in the previous month. However, the broader economic picture raises concerns as business investment declined significantly in the fourth quarter. Production fell at a 3.1% annual rate during this period, with manufacturing down at 2.2%, potentially impacting fourth-quarter gross domestic product. The future of manufacturing improvement remains uncertain, with early indications from the New York Fed showing worsening manufacturing conditions this month.4 

In mid-January, the number of Americans filing for unemployment benefits dropped to a 16-month low of 187,000, reflecting a decrease of 16,000 claims from the previous week’s 203,000 when adjusted for seasonal factors. However, this decline was exaggerated due to a significant drop in filings related to school holidays in New York state. Concurrently, the number of individuals collecting unemployment benefits from all programs in the U.S. decreased by 26,000 to a total of 1.81 million. Nevertheless, the gradual increase in continuing claims over the past year indicates that people are taking longer to secure new employment opportunities. While the decrease in initial jobless claims is a positive development, it’s important to note that this may not necessarily indicate overall strength in the labor market or the broader U.S. economy. The impact of the decline was influenced by specific factors, such as holiday-related fluctuations and the ongoing challenges faced by those seeking new job opportunities.5 

In December, new home construction in the United States decreased by 4.3%, with housing starts dropping from 1.53 million in November to a rate of 1.46 million annually. This marks the first decline in housing starts in four months after reaching a peak of 1.8 million in April 2022. Despite the decrease, the data exceeded Wall Street expectations, where the anticipated rate was 1.43 million when seasonally adjusted. The decline in housing starts was primarily driven by a reduction in the construction of single-family homes, resulting in an 8.6% decline, while multi-family construction saw a 7.5% increase. The only region that witnessed an increase in overall housing starts in December was the West, with a rise of 4.7%, although single-family starts in this region increased by 0.8%. Building permits, indicative of future construction, rose by 1.9% to a rate of 1.5 million. Notably, permits for homes with two to four units, such as townhomes, increased by 10.6%. Despite the recent decline in construction, falling mortgage rates are expected to stimulate home-buying demand. Builders remain optimistic about their ability to sell the homes they are constructing, driven by a persistent shortage of resale inventory, which continues to push buyers towards newly built homes. This could potentially boost new home sales in the coming months and maintain elevated housing starts.6 

In December, home sales in the United States dropped to their lowest level in over a decade due to a persistent shortage of listings, leading to higher prices. Sales of previously owned homes fell by 1% to an annual rate of 3.78 million, the lowest monthly level since August 2010. This figure fell short of Wall Street expectations of 3.83 million for December. Compared to December 2022, home sales were down by 6.2%. Throughout 2023, sales plummeted nearly 19% compared to the previous year, reaching their lowest level since 1995. The median home price in December increased by 4.4% year-over-year, reaching a record high of $382,600. The total number of homes for sale in December increased by 4.2% to 1 million units, but homes remained on the market for an average of 29 days. Sales varied nationwide, with the West experiencing the most significant increase of 7.8%, with a median price of $582,000. All-cash buyers represented 29% of sales, 16% were individual investors or second-home buyers, and 29% went to first-time homebuyers.6 

On Friday, the University of Michigan reported a surge in Consumer sentiment in the United States in January to its highest level since the summer of 2021, indicating increased optimism about the economy as inflation moderates and incomes rise. The preliminary reading of the sentiment survey jumped from 69.7 in December to 78.8. This marks the second consecutive significant increase, propelling the index to its highest level since July 2021. The survey reflects Americans’ sentiments regarding their financial situations and the overall economy. Although sentiment has improved, it remains below pre-pandemic levels of around 100. Key details reveal that the gauge measuring consumers’ opinions about the current state of the economy rose from 73.3 in December to 83.3, while expectations for the next six months increased from 67.4 to 75.9, both reaching their highest levels since July 2021. Americans expect inflation to average 2.9% in the next 12 months, the lowest in four years, with the current inflation rate at 3.4%. This data suggests that inflation is slowing toward the Federal Reserve’s 2% annual target, accompanied by a growing economy, low unemployment, and rising incomes. If these conditions persist, the U.S. may avoid the widely forecasted recession.7 

   WK  Year to Date  
Dow  0.72%  0.46%  
S&P500  1.17%  1.47%  
Nasdaq  2.26%  2.00%  
S&P400 Mid-cap  0.45%  -1.46%   
Russell  -0.34%  -4.08%  
TSX  -0.40%  -0.20%  
Oil   1.30%  2.70% 
  1. https://www.statcan.gc.ca/en/subjects-start/prices_and_price_indexes/consumer_price_indexes 
  1. https://www.newyorkfed.org/medialibrary/media/Survey/Empire/empire2024/ESMS_2024_01.pdf?sc_lang=en&hash=C8D98979D5C18EF6747C316AAD325EAC 
  1. https://www.census.gov/retail/sales.html 
  1. https://www.federalreserve.gov/releases/g17/20240117/default.htm 
  1. https://www.dol.gov/ui/data.pdf 
  1. https://www.nar.realtor/research-and-statistics 
  1. http://www.sca.isr.umich.edu/ 

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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