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Weekly Market Update · 02.27.24
Tech Boosts Equities, Fed’s Preferred Inflation Measure May Decline
Nvidia’s earnings last week beat expectations, igniting a stock rally. The U.S. Core Personal Consumption Expenditures Price Index may fall slightly.
- Markets & Economy
- Economic Insights & Trends
- Federal Reserve
- Market Views
Key Points
What it is
We review how key events from last week affected markets and highlight what could impact markets this week.
Why it matters
Nvidia, which surged last week on strong earnings, is among the large tech-related companies that have lifted the U.S. stocks over the past year.
Where it's going
The core Personal Consumption Expenditures Price Index may provide insight on the Fed’s rate plans this year.
Last Week Review
Nvidia’s strong earnings fueled big tech and semiconductor companies, pushing global equities up 1.5%. U.S. equities led the way, gaining 1.4%, with developed markets outside the U.S. coming in at 1.3% and emerging markets gaining 1.2%. The two-year Treasury yield rose 0.05% and 10-year yield declined 0.03%. The average investment grade was flat while the high yield spread fell 0.08%. The investment grade spread now sits at 0.86%, near the lowest since late 2021, while the high yield spread at 3.06% also sits near the low of the past two years.
U.S. Manufacturing and European Services Improve
The U.S. Manufacturing rebounded while services disappointed. Europe services beat expectations and now sit right on the dividing line between expansion and contraction, but Europe manufacturing lost further ground. Higher U.S. manufacturing activity could put pressure goods prices, which have been an important source of lower inflation over the past year. In Europe, Consumer Price Index inflation slightly decelerated, in line with expectations, to 2.8%.
Fed Minutes Consistent with Fewer Rate Cuts
Minutes from the Federal Reserve’s January meeting noted the risks of cutting rates too quickly and financial conditions becoming less restrictive than appropriate. Fed officials throughout the week repeated the message that they needed to see more progress toward the 2% inflation target before initiating a rate cut campaign. Markets are now pegging the June meeting for the first rate cut, with a chance of about 20% that it would be later.
Nvidia Puts a Cherry on Top of Solid Earnings Season
Nvidia’s (NVDA) earnings moved the market positively as the company beat earnings expectations. Aggregate revenues came in at $22.1 billion, 8% above the average estimate by analysts, and earnings per share beat estimates by 12%. The S&P 500 rallied over 2% last Thursday after the Nvidia earnings release. With about 90% of fourth-quarter results reported by S&P 500 Index companies, earnings have grown by about 7% year-over-year on a 4% rise in sales. Results have outpaced expectations by 8% for earnings and 1% for sales.
This Week Review
Fed’s Preferred U.S. Inflation Measure Expected to Fall Slightly
The core — the Fed’s preferred measure of inflation — is set to be released on Thursday and is expected to fall to 2.8% year-over-year in January from 2.9% in December. Core inflation excludes volatile energy and food prices.
European Unemployment Expected to Remain Steady
Europe is scheduled to release a couple key economic indicators on Friday. February’s Consumer Price Index is expected to show 2.5% year-over-year inflation while the unemployment rate is forecasted to remain steady at 6.4%. China Purchasing Managers’ Index is scheduled for release on Thursday. The non-manufacturing indicator is expected to show expansion, but manufacturing may decline. Japan’s inflation is expected to fall to 1.9% from 2.6%, based on the Consumer Price Index. Core inflation is expected to decelerate to 3.3% from 3.7%.
Source: Bloomberg for data, news developments and schedule of economic releases. Data as of February 25, 2024.
Purchasing Managers Index (PMI)
The PMI provides insights into the current trends and future direction of economic activity in the manufacturing and service sectors. It sets the federal funds rate target, which is achieved through open market purchases by the Federal Reserve and has a broad impact on interest rates in the financial system and the economy. The committee consists of 12 members from regional reserve banks
Credit Spread
The credit spread often is the difference between yields of a corporate bond and a government bond, such as a Treasury, of similar maturity. Investors demand additional yield as extra compensation for assuming the risk of default.
Core Personal Consumption Expenditures Price Index
The index is a measure of the prices that people living in the U.S., or those buying on their behalf, pay for goods and services. It captures inflation or deflation across a wide range of consumer expenses and reflects changes in consumer behavior. The core index makes it easier to see the underlying inflation trend by excluding two categories — food and energy — where prices tend to swing up and down more dramatically and more often than other prices.
Main Point
Some Signs of Improvement
With about 90% of U.S. fourth-quarter earnings reported by S&P 500 Index companies, earnings and sales have exceeded estimates. U.S. manufacturing showed signs of improvement, though services disappointed. Europe services beat expectations and now sit right on the dividing line between expansion and contraction, but Europe manufacturing lost further ground.
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