2/23 - Weekly Economic Highlights

 The significant repricing of Fed expectations continued this week, currently the market has approximately 80 basis points in rate cuts priced in versus 150 at the beginning of the year. 

Although it was a holiday shortened week with only a few economic releases, treasury yields reached new year-to-date highs after an unexpected drop in new jobless claims and minutes reflecting a Fed unlikely to consider cutting interest rates. In addition, both the S&P 500 and Dow Jones Industrial average reached new record highs supported by a resilient economy and quarterly results and guidance provided by Nvidia on Thursday. Nvidia is a key corporation in the boom surrounding artificial intelligence technology. Significant investor optimism is tied to the outlook related to the economic benefits that artificial intelligence can provide.

Despite the recent headlines of a growing number of job cuts at large companies, applications for unemployment benefits fell to the lowest level in a month and the second lowest level this year. Initial claims decreased by 12,000 to 201,000, and continuing claims, which is a proxy for the total number of individuals receiving unemployment benefits dropped to 1.86 million. Although the increasing number of layoffs at big corporations may be an early indication of higher jobless claims in the near future, the current numbers remain indicative of strong labor market. 

Minutes from the January 30-31 Federal Open Market Committee (FOMC) meeting released on Wednesday revealed a Fed more concerned with the risk of cutting rates too soon, versus keeping rates too restrictive for too long. Overall, policymakers want to see more evidence that inflation is on a sustainable path toward their 2% target. Consistent with the release of the Fed minutes, Federal Reserve Governor Christopher Waller on Thursday stated he would need “at least another couple more months” of data to support the assessment that inflation is falling enough to justify interest rate cuts.   

Two key indicators of economic activity were also released this week that continue to defy the economic resiliency story. The Conference Board’s Leading Economic Index (LEI) and the Chicago Fed National Activity Index (CFNAI) were both in negative territory again at -0.4% and -0.3 respectively for January. Although the declining LEI continues to signal economic headwinds, for the first time in the past two years, six out of ten components were positive contributors over the past six months. The CFNAI fell by a greater amount than expected as 59 of the 85 individual indicators made negative contributions to the indicator. Although declining negative readings have historically been indicative of economic recessions, this is not Chandler’s base case scenario for 2024.

Buoyed by low mortgage rates at the start of the year, sales of existing homes rose by 3.1% in January. Mortgage rates started the year well below 7.00% but have recently climbed higher in line with higher interest rate levels. 

The 2-year treasury moved up 10 basis points to 4.71% after starting the week at 4.61%, and the 10-year is up 2 basis points to 2.29% as of Friday morning. Of note, since the start of the month, the 2-year is up 51 basis points, and the 10-year is up 44 basis points. The yield inversion between the 2-year and 10-year treasury widened, ending the week at approximately 41 basis points. Next week investors will be focused on the release of the Personal Consumption Expenditures (PCE), the Fed’s preferred gauge of inflation. In the current market environment, Chandler will continue to focus on maintaining investment strategies at or near benchmark duration with a strong high-quality bias.

New Home Sales, Dallas Fed Manufacturing Activity, Durable Goods Orders, FHFA House Price Index MoM, S&P CoreLogic Case Shiller 20-City Index, Conference Board Consumer Confidence, Dallas Fed Services Activity, Richmond Fed Business Conditions, MBA Mortgage Applications, GDP 4Q (2nd), Initial Jobless Claims, Continuing Claims, Personal Income, Personal Spending, Personal Consumption Expenditures (PCE), ISM Manufacturing, University of Michigan Sentiment

© 2024 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. All rights reserved. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. S&P 500– The S&P 500 is a market value weighted index of 500 large-capitalization stocks. The 500 companies included in the index capture approximately 80% of available US market capitalization. The Chicago Fed National Activity Index is a monthly index designed to gauge overall economic activity and related inflationary pressure. The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories. A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.