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Record Highs and Consumer Optimism
Strong gains in the technology sector helped propel the S&P 500 to a record close last week. Global equities (represented by the MSCI All Country World Index) were down -0.05%, and domestic stocks (represented by the S&P 500 Index) were up 1.19%.
US Retail Sales
Last Wednesday’s release of US retail sales showed a strong consumer in December as sales grew 0.6% for the month, beating expectations and rising from November’s 0.3% pace. Department store sales led the way, increasing 3% for the month, and online sales also grew at a strong 1.5% clip.
The University of Michigan’s preliminary report on consumer sentiment showed a strong jump for the second month in a row. With January’s reading of 78.8, this marks the highest level dating back to July 2021 and the largest two-month gain since 1991. The improved reading was boosted by greater optimism around inflation by consumers.
Home sales continued to struggle in December to continue the trend for 2023. Existing home sales fell -1.05% month-over-month in December. 2023’s 4.09 million home sales was the lowest level since 1995 and dropped 19% from 2022 according to the National Association of Realtors.
This Thursday the US government’s initial estimate of fourth quarter GDP is slated to be released. Following a strong 4.9% annualized rate in the third quarter, expectations were for the economy to cool but continue to grow at around a 2.0% rate in the fourth quarter. However, the Atlanta Fed’s GDP-Now tracker estimated a slightly higher projection of 2.4% just this Friday.
Personal Consumption Expenditures (PCE)
Along with the GDP reading, an inflation report in the form of the Personal Consumption Expenditures (PCE) index will also be released this week. Both headline and core (excluding food and energy costs) PCE have come down meaningfully from their peaks in the summer months of 2022, and investors will look for a continuation of the trend lower for December towards the Fed’s 2% long-term inflation target.
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.