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  • Writer's pictureJade Rossback

All three major stock indexes ended in negative territory terminating a nine-week long winning streak.

Economic & Earnings Commentary

We start another new week of trading looking at a backloaded set of data: the consequential Consumer Price Index (CPI) comes out this Thursday, followed by the Producer Price Index (PPI) for Friday — both reflecting results from December. We’ll also see a slow trickle of quarterly earnings reports this week until the spigot opens Friday morning with Q4 results from some of the biggest Wall Street banks: JPMorgan (JPM), Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC).

Markets have moderated notably since the beginning of the year, but they’re no longer taking a nosedive. As of last Thursday, we’ve begun to see a flattening, which would suggest market participants were interested in taking a bit of air out of the valuation balloon overall; economic data is materializing of late that suggests a March interest rate cut from the Fed may be getting a bit ahead of ourselves; pricing in six or seven cuts throughout the year are being re-thunk, as well.

That said, December core CPI year over year is expected to come in sub-4% for the first time since early 2021, and well off the 6 1/2% core CPI year-over-year rates we were seeing as recently as the second half of 2022. This is one inflation metric where we do see clear results of high interest rates dissolving rampant inflation over time, and any downward surprises may put those projections for near-term cuts back on the table. However, non-core CPI numbers are expected to tick up.

PPI results are projected to post the first positive results since September, coming off a 0.0% print for November. These numbers have been trending within a range of -0.4% to +0.7% since mid-2022. But just like with non-core CPI, PPI moving slightly higher is something worth keeping an eye on, including the rate of change month over month.

Besides the Big Banks on Friday, we expect quarterly results for KB Home (KBH) on Wednesday and Delta Air Lines (DAL) on Friday. This morning, Boeing (BA) is taking the Dow more than -130 points lower following two incidents where pressurization in its cabin blew out an Alaskan Air (ALK) window and a Spirit Airline (SAVE) door in Boeing’s 737 MAX-9 planes. Recall the 737 MAX control panel difficulties which led to a year-plus grounding and no sales following two plane crashes overseas. This does not appear to be a re-emergence of prior issues, but another black eye for the model of which Boeing was looking to sell many units.

The S&P 500, meanwhile, is flat ahead of the opening bell. The Nasdaq is +25 points at this hour. Boeing shares are -7.7% currently.

Market News

Wall Street closed higher after a choppy session on Friday to finish the first week of 2024. Market participants digested better-than-expected job reports of December. However, weak services PMI boosted investors’ confidence that the first cut in interest rate will happen in March. All three major stock indexes ended in positive territory. However, U.S. stock markets suffered a blow last week with three major stock indexes finished in negative zone.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) was up 0.1% to close at 37,466.11. At intraday high, the blue-chip index was up more than 187 points and at intraday low, the index was down nearly 117 points. Notably, 17 components of the 30-stock index ended in positive territory, while 13 ended in negative zone.

The tech-heavy Nasdaq Composite finished at 14,524.07, gaining 0.1% due to good performance of large-cap technology stocks. The tech-laden index terminated a five-day losing streak for the first time since Oct 12, 2022.

The S&P 500 rose 0.2% to finish at 4,697.24. The market’s benchmark index terminated a four-day losing streak for the first time over two months. Seven out of 11 broad sectors of the broad-market index ended in positive territory while four in negative zone.

The Communication Services Select Sector SPDR (XLC), the Financials Select Sector SPDR (XLF) and the Utilities Select SPDR (XLU) advanced 0.4% each, while the Consumer Staples Select Sector SPDR (XLP) and the Real Estate Select Sector SPDR (XLRE) dropped 0.2% each.

The major gainer of the S&P 500 Index was Catalent Inc. (CTLT) after its shares surged 5.3%.

The fear-gauge CBOE Volatility Index (VIX) was down 5.5% to 13.35. A total of 11.2 billion shares were traded on Friday, lower than the last 20-session average of 12.3 billion.

Better-Than-Expected Jobs Data

The Department of Labor reported that the U.S. economy added 216,000 jobs in December, beating the consensus estimate of 170,000. However, the metric for November was revised downward to 173,000 from 199,000. Similarly, the data for October was also revised downward to 105,000 from 150,000. For 2023, average job additions per month was 225,000 compared with 399,000 in 2022.

Major recruiters of December were government (52,000), health care (38,000), leisure and hospitality (40,000), social assistance (21,000), construction (17,000) and retail (17,000). The major job loser was Transportation (23,000).

The unemployment rate in December was 3.7%, remains flat month-over-month but below the consensus estimate of 3.8%. However, the real unemployment rate (including discouraged workers and those holding part-time jobs for economic reasons) increased to 7.1% in December form 7% in the previous month.

Month over month, the labor force participation rate was down 0.3% or 676,000 in December to 62.5%. Average workweek dropped marginally to 34.3 in December from 34.4 in November. Average hourly wage rate increased 0.4% in December, remains flat with November but higher than the consensus estimates of 0.3%. Year over year, wage rate increased 4.1% in December, beating the consensus estimate of 3.9%.

Other Economic Data

The Institute of Supply Management reported that the services Index for December came in at 50.6, reflecting 12th consecutive months of expansion. Any reading above 50 indicates expansion in services activities. However, the metric was lower that November’s data of 52.7 and the consensus estimate of 52.5. The sub index for new orders was 52.8 in December compared with 55.5 in November. The sub index for employment contracted to 43.3 in December from 50.7 in November. December’s data was the lowest since May 2020.

Factory orders in November increased 2.6%, outpacing the consensus estimate of 2.5%. October’s data was revised upward to a decline of 3.4% from a decline of 3.6% reported earlier. New orders for durable goods increased 5.4% in November compared with 5.1% in October. New orders for non-durable goods remained flat in December with the prior month.

Weekly Roundup

Last week was disappointing for Wall Street as all three major stock indexes ended in negative territory terminating a nine-week long winning streak. The Dow, the S&P 500 and the Nasdaq Composite – fell 0.6%, 1.5% and 3.3%, respectively. Market participants remained concerned regarding the timing of the first rate cut along with stretched valuations of U.S. stock markets.

*Content provided by Zacks Investment Research. An American company dedicated to the production of independent research and investment-related content. It was founded in 1978 by Len Zacks, based on his insights while pursuing his Ph.D. at MIT.

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