Week In Review
Despite the "R" word (recession) being thrown around for the last year, the economy continued to grow in the 4th quarter. Gross domestic product (GDP) was up at an annualized rate of 2.9%, which was higher than expected by Wall Street analysts. Consumer spending makes up nearly 70% of GDP, and it was up 2.1% for the quarter ending December 31, however, it did decline in the final month of the year, possibly signaling a slowing economy. Also slowing was the Fed's preferred measure of inflation, core personal consumption expenditures, up 4.4% from a year ago. This was the smallest annual rate of increase in core PCE since October 2021.
Next week the FOMC will meet and on February 1 we will likely be seeing another interest rate increase. The CME FedWatch Tool has the odds of a 0.25% hike at 98%, which would be the smallest hike since March 2022. The Fed has raised interest rates over the last year in an effort to bring down inflation.
The S&P 500 rose 1.2% this past week as earnings season continued on. According to FactSet, about 30% of S&P 500 companies have already reported on earnings in what has been a below-average earnings season. "Of these companies, 69% have reported actual (earnings per share) above estimates, which is above the percentage of 67% at the end of last week, but below the 5-year average of 77% and below the 10-year average of 73%." We're going to hear from a TON of S&P 500 companies this coming week, including Apple, Amazon, Alphabet. This should make for an interesting week in the market as a lot of these companies have previously announced layoffs and will likely give guidance on expectations for the rest of the year.
We entered into the year with the consensus opinion on Wall Street that we would see earnings decline in the first half of the year, and so far that's what we've seen. However, the S&P 500 is up more than 6% to begin the new year, and the tech-heavy Nasdaq, which was severely beaten up last year, is up more than 11%. A few weeks ago we wrote about how earnings can decline and the market can still be positive, a scenario which has played out several times in the past.
What We're Reading
- Where Stocks, Bonds, and Crypto are Headed - WSJ
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- When It Comes to Marriage and Money, Opposites Attract - WSJ