Hope you are all doing well. Major U.S. stock indexes added to the previous week’s gains, and a rally on Friday pushed the S&P 500 to a level that broke its previous all-time closing high set on January 3, 2022. The Dow topped a record that it had set 17 days earlier. The latest gains marked the 11th positive week out of the past 12. With extremely cold weather throughout the country this week. I have broken down this week’s update using the components of a winter storm.
Cold Air
High interest rates weighed on the U.S. residential real estate market in 2023, as the National Association of Realtors on Friday reported that existing home sales fell to the lowest full-year level since 1995. Last year’s total of 4.09 million home sales was down 19% from 2022’s 5.03 million. More bad news for the real estate market, the optimism regarding Fed cuts is starting to fade. The 10-year U.S. Treasury bond yield rose to its highest level in more than five weeks. On Friday, the yield closed around 4.14%. That is up from a recent low of 3.79% on December 27. The change in rate expectations is also causing a chill in some areas of the stock market that had been showing signs of life late in 2023. Small-cap stocks, the broader equal-weight S&P 500, and investment-grade bonds, have now come under some pressure to start 2024. I expect we will see a pocket of market volatility over the next ten days. We will get readings on both core inflation (Friday) and GDP (Thursday) , and a Fed meeting (1/31).
Lift
U.S. consumer sentiment is warming, rising above the cold feeling that prevailed for much of the last 2 years. Sentiment added to its strong rebound for the biggest two-month improvement since 1991. The University of Michigan’s January sentiment reading rose to 78.8, up from 69.7 in December and 61.3 in November. Consumers reported greater optimism that inflation will continue to ease. The turnaround in sentiment could fuel a continued rally in stocks, as sentiment is still nowhere near a peak as it comes off historic lows.
Moisture
We may be seeing some sunlight break through the dark cloud cover that is cancer. The Food and Drug Administration (FDA) green lit a cancer vaccine to start a Phase 3 clinical trial. It will be a three-year endeavor with a goal to enroll 500 people and is planned to launch sometime this year. The cancer vaccine has been tested in hundreds of patients with advanced forms of melanoma in Phase 2 clinical trials. Among those with the most advanced forms of melanoma, disease-free survival after three years for people with stage IV of the disease was about 68% in the vaccine-only group, versus zero in the placebo group. Before this vaccine can be more widely available it will need to show success over years in a phase 3 clinical trial and then get final approval by the FDA. The developer of the vaccine is a private company but the news could spur interest in biotech and pharma stocks which have been lagging for over the past two years
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