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Positive Economic Data Pushes Equities Higher
Equity markets rose last week amid better-than-expected economic growth in the fourth quarter and a positive surprise in manufacturing and services data. Global equities (represented by the MSCI All Country World Index) were up 1.31%, and domestic stocks (represented by the S&P 500 Index) were up 1.07%.
Fourth quarter US GDP grew at an annualized rate of 3.3%, beating expectations of 2.0%. Marking the 6th consecutive quarter of over 2.0% growth, the economy has seemed to power on through the higher interest rate environment. Real GDP for the whole year of 2023 increased by 2.5%, compared to 1.9% in 2022. Increases in consumer spending as well as government expenditures and investment were the main contributors to the year’s GDP growth.
S&P Global Flash Manufacturing Index
While the GDP release was a look back on the economy, the S&P Global flash manufacturing index for January entered expansionary territory for the first time since April 2023. Reaching 50.3, the highest level dating back to October 2022, the reading bested estimates of 47.6 and last month’s reading of 47.9. The S&P Global’s services index continued to rise and remained in expansionary territory with a reading of 52.9, increasing from last month’s 51.4 reading.
Personal Consumption Expenditure (PCE)
The core Personal Consumption Expenditure (PCE) price index, the Fed’s preferred inflation gauge, rose a modest 0.2% on a month-over-month basis for December. The index also posted its lowest annual rate since 2021 at 2.9%. Now under 3.0%, core PCE inflation has come down significantly from 2022 highs of 5.6%.
This week the US Federal Reserve will hold their two-day policy meeting. The Fed has held rates steady for three consecutive meetings, and investors widely expect the Fed to keep rates unchanged at this time. On the economic data calendar, the monthly jobs report is slated to be released Friday for the month of January. In December, the economy added 216,000 nonfarm payrolls, beating expectations and jumping from 173,000 the month prior.
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.