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Economic Update February 2024

Economic Update February 2024

February 26, 2024

 At PalomarWealth, it is important to us that you are well-informed about what’s happening in the markets.  Here are a few of the key topics of conversation that we feel deserve the most attention this month. If you have any questions or would like to continue the conversation, let us know, and we appreciate the opportunity. 

The jobs market continues to show remarkable resilience. In January, there were 353,000 new jobs added, the largest increase in one year1. Wages also grew by 0.6%, giving consumers a boost in their inflation-adjusted spending power. Treasury yields surged immediately following the strong job report, reinforcing the Federal Reserve's stance on maintaining rates a bit longer. The Federal Reserve’s recent statement signaled a cautious approach towards rate cuts, emphasizing the need for sustained inflation trends before adjusting rates, challenging previous market expectations of a March rate cut2. 

In January, the Consumer Price Index (CPI) rose by 3.1% compared to the previous year, slightly lower than December's 3.4% but still above expectations3. The report also showed core prices, excluding food and energy costs, increased by 3.9% year-over-year. Services, excluding housing, experienced a notable increase of 0.7% month-over-month, while core goods prices fell for the eighth consecutive month. These inflationary trends are closely watched by investors and economists, influencing consumer sentiment, spending, yields, housing, and equity valuations. 

Despite concerns over inflation and monetary policy, stock markets have shown resilience, with the S&P 500 closing above 5,000 for the first time in February and the NASDAQ 100 hitting multiple all-time highs this year so far. Despite a few brief periods of volatility, the overall momentum in US stocks since late October has continued so far this year. While the momentum has pushed up valuations across the S&P 500, the fourth quarter’s earnings reports have shown earnings growth of nearly 5% thus far4. Nevertheless, the market's focus remains on the Federal Reserve and adjusting expectations of when they may be able to cut rates.  

The bottom line: Monetary policy expectations continue to shift, particularly on the back of a worse-than-expected inflation report and significant job gains. The delicate balance the economy finds itself in will likely reignite debate on how successful the Federal Reserve may be in bringing inflation finally below its target rate without doing damage to the jobs market as well as overall economic growth. As with last month, cautious optimism in a potential soft landing may still be the predominant story, though the next inflation report and jobs report will be important ahead of the Federal Reserve’s next meeting on March 20th. 

Sources: 

  1. Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm 
  1. CME FedWatch Tool’s probabilities of a rate cut in March as of January 30, 2023 
  1. Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm 
  1. Bloomberg analysis as of February 15, 2024 


Disclosures 

The material presented includes information and opinions provided by a party not related to Thrivent Advisor Network. It has been obtained from sources deemed reliable; but no independent verification has been made, nor is its accuracy or completeness guaranteed. The opinions expressed may not necessarily represent those of Thrivent Advisor Network or its affiliates. They are provided solely for information purposes and are not to be construed as solicitations or offers to buy or sell any products, securities, or services. They also do not include all fees or expenses that may be incurred by investing in specific products. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. You cannot invest directly in an index. The opinions expressed are subject to change as subsequent conditions vary. Thrivent Advisor Network and its affiliates accept no liability for loss or damage of any kind arising from the use of this information.   

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This communication may include forward looking statements. Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” “could’” or the negative of such terms or other variations on such terms or comparable terminology. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to differ materially. 

Index Benchmarks presented within this report may not reflect factors relevant for your portfolio or your unique risks, goals or investment objectives. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index.  

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. 

The NASDAQ (National Association of Securities Dealers Automated Quotations) 100 is a stock market index made up of equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock exchange. It is a modified capitalization-weighted index. 

The S&P 500® Index, or the Standard & Poor's 500® Index, is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. 

 

 

The Bureau of Labor Statistics (BLS) is an agency of the United States Department of Labor. It is the principal fact-finding agency in the broad field of labor economics and statistics and serves as part of the U.S. Federal Statistical System. BLS collects, calculates, analyzes, and publishes data essential to the public, employers, researchers, and government organizations. 

The CME FedWatch Tool is a tool created by the CME Group (Chicago Mercantile Exchange Group) to act as a barometer for the market’s expectation of potential changes to the fed funds target rate while assessing potential Fed movements around Federal Open Market Committee (FOMC) meetings.