The economic landscape last week was a tale of two halves. On one hand, US stocks, led by the tech sector, soared to unprecedented heights. On the other, the housing market experienced a downturn, with sales hitting a decade low. Amid these mixed signals, inflation expectations dipped to a three-year low, while consumer sentiment reached an 18-month high.
European stocks felt the heat from central bank comments, and the Baltic Exchange’s main sea freight index made significant strides. The Canadian dollar bounced back, although concerns about potential interest rate cuts remain. As we move forward, the focus will be on key economic indicators and earnings reports.
US Stock Rally Fueled by Tech Sector
Friday saw a strong rally in US stocks, with the S&P 500 closing at a record high of 4,839, up by 1.2%. The Dow Jones surged by 395 points, and the Nasdaq advanced by 1.7%. The tech sector, especially chip manufacturers, led the rally, buoyed by Taiwan Semiconductor’s optimistic forecast. Nvidia, Advanced Micro Devices, and Texas Instruments all saw significant gains. Over the week, the S&P 500 rose by 1.1%, the Nasdaq jumped by 2%, and the Dow Jones ended 0.5% higher.
Housing Sales Decline Amidst Optimistic Outlook
In contrast to the buoyant stock market, existing-home sales in the US fell by 1.0% in December 2023, undershooting market expectations. The annualized rate hit 3.78 million units, the lowest since August 2010. Sales of single-family homes decreased by 0.3%, while condominiums and co-ops saw a sharp 7.3% decline. Despite the downturn, Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), remains hopeful, citing lower mortgage rates and an anticipated increase in inventory in the coming months as potential catalysts for recovery.
Declining Inflation Expectations and Soaring Consumer Sentiment
In an unexpected twist, inflation expectations in the US fell to 2.9% in January 2024, the lowest in three years. This trend extended to the five-year outlook, which decreased to 2.8%. At the same time, the University of Michigan’s consumer sentiment index soared to 78.8, the highest since July 2021. Confidence in declining inflation and strengthening income expectations contributed to this surge. Both the short-term outlook for business conditions and the measure assessing current economic conditions saw significant gains.
Mixed Picture in European Markets
European stocks couldn’t maintain early gains and closed slightly lower, influenced by hawkish comments from central bank policymakers. The Stoxx 50 index dropped 0.7% for the week, and the Stoxx 600 recorded a 1.6% retreat. Luxury brands in Paris and industrial heavyweights in Frankfurt faced losses, while ASML bucked the trend with a 1.5% gain.
Sea Freight Index Surges, Canadian Dollar Recovers
The Baltic Exchange’s main sea freight index surged 10.8% on Friday, marking its biggest gain since November 29. The capesize and panamax indices both saw notable increases. In contrast, the supramax index broke a 26-session losing streak but fell 5.3% for the week. The Canadian dollar traded around 1.345 per USD, recovering from a one-month low. Analysts suggest that the Bank of Canada is likely to delay interest rate cuts, supported by rebounding inflation and unexpectedly strong retail sales for December.
The upcoming week promises crucial economic indicators, with investors closely monitoring the advance estimate of Q4 GDP growth rate, PCE Price Indexes, and personal income and spending in the US. Major earnings reports from industry giants, including Microsoft, Tesla, and Netflix, are expected. Globally, interest rate decisions in various countries and manufacturing and services PMIs will be closely watched, providing insights into the economic landscape. As mixed signals persist, the markets remain on alert for potential shifts in the global economic trajectory.