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Equities Push Higher as Inflation Concerns Decrease
Equity markets continued their trend higher last week as an inflation report calmed investor worries of an uptick in consumer prices. Global equities (represented by the MSCI All Country World Index) were up 0.81%, and domestic stocks (represented by the S&P 500 Index) were up 0.99%. These indices have started the year strong as they have been up 7 out of the first 9 trading weeks.
Personal Consumption Expenditures (PCE)
The US Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, was released last week for January. Core PCE (excluding food and energy prices) rose 2.8% on an annualized basis, in line with expectations and slightly lower than the previous month’s 2.9% reading. The report was highly anticipated as the core Consumer Price Index (CPI) released earlier in February showed a rise of 3.9%, hotter than the 3.7% consensus expectations.
Purchasing Managers Index (PMI)
The Institute for Supply Management’s (ISM) manufacturing Purchasing Managers Index (PMI), a gauge of manufacturing activity, fell for the month of February. With a reading of 47.8, the index fell from January’s reading of 49.1, the highest level since October 2022. Manufacturing PMI has now been at a contractionary level for 16 straight months (readings under 50 represent contraction while readings above 50 represent expansion).
Q4 Earnings
With about 97% of S&P 500 companies reporting Q4 earnings, the average earnings growth rate was 4.0% according to FactSet. This marks the second consecutive quarter of year-over-year earnings growth as the index posted a 4.7% increase in the third quarter of 2023.
Looking Forward
On the economic data calendar this week, investors will key in on the health of the labor market as the Job Openings and Labor Turnover Survey (JOLTS) will be released Wednesday and the monthly labor market report will be released Friday. The US unemployment rate has stayed historically low around 3.70%, and the economy added 353,000 jobs in January, nearly doubling economist expectations.
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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