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Equities Slip to Start New Year
Equity markets fell to start the first week of trading in 2024 following a streak of nine weekly gains to end 2023. Global equities (represented by the MSCI All Country World Index) were down -1.58%, and domestic stocks (represented by the S&P 500 Index) were down -1.50%.
US Labor Market
The headline economic data released during the holiday-shortened week came in the form of a labor market update. The US economy added 216,000 nonfarm payrolls in December, beating consensus estimates. The unemployment rate also remained steady near decade-lows at 3.7% in December. Wage growth in December rose 0.4% on a monthly basis, slightly higher than expectations. On a year-over-year basis, wages grew at a 4.1% pace, a slight uptick from November’s reading of 4.0%. While not a fun trend to cheer for, moderation in wage growth has coincided with a slowdown in inflation.
Fed’s December Meeting
While investors have shifted conversations from Fed rate hikes to cuts over the past year, minutes from the Fed’s December meeting expressed their view that “risks around the inflation forecast [are] seen as skewed to the upside” despite strong progress and outlook on inflation moderation. At the end of 2023, markets were pricing in a 73% probability of a 0.25% rate cut at the Fed’s March meeting according to the CME FedWatchTool. On January 5th, this probability of the first cut in March fell down to 64%. Along with the strong labor market update and Fed meeting minutes, the US 10-year treasury rate rose back to 4.0% following three consecutive declining weeks as markets shifted expectations around rate cuts.
Looking Ahead
This week the Consumer Price Index for December will be released. In November, the annual rate fell to 3.1% from 3.2% the previous month, and core CPI (excluding food and energy) rose at 4.0%, the slowest pace since September 2021.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.
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