Happy and Healthy 2024 to everyone. Hope your year is off to a great start. The positive momentum from stocks’ string of nine consecutive weekly gains in late 2023 didn’t extend into 2024. The major U.S. indexes posted their first weekly declines since late October. The NASDAQ fell more than 3% for the week, with the S&P 500 and Dow posting smaller declines. Small cap stocks surged 22 percent the last two months of 2023 but 2024 is not great so far. The U.S. small-cap benchmark fell nearly 4% for the week. Cindy Morgan (Lacey Underall in Caddyshack) passed away this weekend. I have broken down this week’s update using quotes from Caddyshack.
We still have a strong labor market going for us. The U.S. economy added 216,000 new jobs last month, exceeding most economists’ expectations and producing the biggest monthly gain in three months, while the unemployment rate was unchanged at 3.7%. Overall, the economy generated 2.7 million jobs in 2023, with an average monthly gain of 225,000. Wage growth ticked higher in December and could keep the pressure from inflation off and supporting spending. I expect that we will continue to see growth in consumer spending and corporate profits, while inflation continues to moderate. The release of the latest employment report showed that the jobs market remains resilient. Consumer spending drives corporate profits and the economy in general and a strong labor market fuels consumer spending.
The market is starting to realize they may not be getting those rate cuts from the Fed anytime soon. The yield of the 10-year U.S. Treasury bond climbed back above 4.00%, snapping a string of three weekly declines. Mostly, positive economic data fueled concerns that the U.S. Federal Reserve could delay interest-rate cuts. The 10-year Treasury’s closing yield on Friday was 4.04%, up from 3.88% at the end of the previous week. The recently released Fed meeting minutes aligned with my view that the Fed will be cautious. Another small increase could still be in the cards and the market will have to wait longer before the see rate cuts. I think 2024 will be a positive year for both stocks and bonds. I expect this year to be a much more volatile year than last year largely because I think the market is still over estimating how much the Fed will cut interest rates.
New Year, same divisions. Another potential government shutdown standoff is looming. Democratic and Republican lawmakers have just two weeks to craft a new spending deal to avoid a partial government shutdown. So it bears keeping an eye on. However, I expect members of Congress on both sides to grandstand about issues like the border and Ukraine but at the end of the day they will probably agree to a temporary resolution and kick the can further down the road.
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