Bulls step up after economic data

The stock market has been churning this week, consolidating its gains and redistributing some of those gains as it waits for something new and exciting to take its next trading step. To this point, the market-cap weighted S&P 500 is down 0.4% for the week entering today and the equal-weighted S&P 500 is up 0.1%.

Mega-cap stocks have encountered some profit-taking interest at month end, which is the main difference for the disparate paths taken by the market-cap weighted index and the equal-weighted index.

Interestingly, the Nasdaq Composite has finished lower in six of the last eight trading sessions, yet over that span it is up 0.3% (thank you, NVIDIA, and the 3% Nasdaq gain following your earnings report).

We digress.

Focusing on the matters at hand today, the stock market is digesting another slate of earnings results that has generated mixed responses. Okta (OKTA), for instance, is up 25% after its report; Snowflake (SNOW) is down 22% after its report and news that CEO Frank Slootman is retiring; Best Buy (BBY) is up 4% following its results; and Dow component Salesforce (CRM) is little changed after its report.

The earnings news, however, is taking a backseat for the moment to the economic news, which participants had been hoping would take a step in the right direction.

Briefly, personal income increased a hefty 1.0% month-over-month in January (Briefing.com consensus 0.5%), bolstered by the 3.2% cost-of-living adjustment for social security recipients. Nominal personal spending was up just 0.2% month-over-month, as expected. Real personal spending was down 0.1%, the result of a 0.3% month-over-month increase in the PCE Price Index (Briefing.com consensus 0.4%). The core-PCE Price Index, which excludes food and energy, was up 0.4%, as expected.

On a year-over-year basis, the PCE Price Index was up 2.4%, versus 2.6% in December, and the core-PCE Price Index was up 2.8%, versus 2.9% in December.

The key takeaway from the report will revolve around the year-over-year disinflation seen in the PCE Price Indexes and the softening in real personal spending, which should temper Q1 GDP growth forecasts. So, disinflation paired with slower growth are conditions the market will think are going to promote rate-cut thinking at the Fed in due time.

That perspective was likely helped by the initial and continuing jobless claims report, but particularly the continuing claims data.

Initial jobless claims for the week ending February 24 increased by 13,000 to 215,000 (Briefing.com consensus 206,000), which is still a relatively low number for this series. Continuing jobless claims for the week ending February 17 increased by 45,000 to 1.905 million, which is the highest level for that series since November.

The key takeaway from the report is the understanding that it has become more challenging to find a new job right away, which is symptomatic of a labor market that is not running as tight as it once was. The four-week moving average for continuing claims of 1,879,750 is the highest since December 11, 2021.

Treasury yields have reacted accordingly and have taken a step lower. The 2-yr note yield is down three basis points at 4.64% (down from 4.70% overnight) and the 10-yr note yield is down one basis point to 4.26% (down from 4.32% earlier).

Equity futures, meanwhile, took a step higher after the data. Prior to the release, the S&P 500, Nasdaq 100, and Dow Jones Industrial Average futures were all lower and trading below fair value. That indication has been tipped on its head.

Currently, the S&P 500 futures are up 15 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 97 points and are trading 0.6% above fair value, and the Dow Jones Industrial Average futures are up 56 points and are trading 0.1% above fair value.

It will be a step up for the indices, then, when trading begins if that posture holds. 

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Originally Posted February 29, 2024 – Bulls step up after economic data