Last week was packed with macro events. The U.S. Treasury Quarterly Refunding was particularly in focus after last November’s announcement started the massive bond rally. This time around, there was little surprise except that the issuance size will be $760 billion — $55 billion less than expected.1
On the economic data front, we received a strong Job Openings and Labor Turnover (JOLTS) number, a blowout non-farm payroll number (353,000 versus 185,000 expected, 0.6% month-over-month average hourly wage growth) and solid Institute for Supply Management (ISM) Manufacturing Index.2,3 All of the data indicates a resilient or even reaccelerating economy. We also received benign numbers on the labor cost side, with the Employment Cost Index (ECI) and Unit Labor Cost coming in below expectations.4 The lower labor costs support the view that the Federal Reserve (Fed) can cut rates even when growth is robust.
On Wednesday, New York Community Bancorp (NYCB) surprised the market when it reported a quarterly loss and the cut of dividends.5 NYCB’s large exposure in commercial real estate, especially in rent-controlled New York City apartments, brought market attention back to risks in the commercial real estate industry. Also, on Wednesday, Fed Chair Jerome Powell pushed back on the aggressive rate cuts that were priced in the market, saying a March rate cut is unlikely.6 The market reduced the odds of a March cut but added more rate cuts for the second half of the year.
On Sunday night, Fed Chair Powell appeared on CBS’ “60 Minutes” and reiterated that the Fed is not planning to cut rates for March. He also said he doesn’t expect policymakers to dramatically change their 2024 interest rate forecasts. The Fed was forecasting 75 basis points (bps) in rate cuts for 2024; the market is currently pricing in 121 bps.7
At the end of the week, the Magnificent Seven’s earnings are what really seemed to matter for the stock market. Meta (META) announced that it will continue to operate efficiently instead of increasing hiring or capital spending; Amazon (AMZN) rode the recent strong consumer spending to report a solid earnings report. Meta was up 20%, and Amazon was up 8%.8 With a $1 trillion market cap for Meta and a $1.7 trillion market cap for Amazon, these two stocks drove the S&P 500 Index and Nasdaq 100 to another record high.8 Stocks have been up 13 weeks out of the last 14 weeks.9
This week provides additional data for markets to consider, beginning with the senior loan officer survey today.10 The lending standard has been tightening, but so far it has made little impact on consumer spending. Additionally, the ISM Service Index is out today.11 On Friday, we’ll see the revisions for the Consumer Price Index (CPI). There are also 3-year, 10-year and 30-year Treasury Auctions on Tuesday, Wednesday and Thursday.12
1ING – Rates Spark: Markets have turned complacent to inflation risks; 1/29/24
2U.S. Bureau of Labor Statistics – Job Openings and Labor Turnover Survey; as of 1/29/24
3CNBC – U.S. economy added 353,000 jobs in January, much better than expected; 2/2/24
4Reuters – Slowing US labor cost gains brighten inflation picture; 1/31/24
5Reuters – US bank stocks sink after New York Community Bancorp cuts dividend; 1/31/24
6Yahoo! Finance – Fed’s Powell Cements Pivot But Pushes Back on Timing of Cuts; 1/31/24
8Forbes – More Earnings Gives Stocks Outside Magnificent 7 A Chance To Step Up; 2/5/24
9CNBC – Stocks slip as Powell says Fed needs more evidence before cutting rates: Live updates; 2/5/24
10FXStreet – United States Loan Officer Survey; as of 2/5/24
11MarketWatch – U.S. Economic Calendar; as of 2/5/24
12U.S. Department of Treasury – Auction Schedule; as of 2/5/24
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