Markets Advance on Strong Economic Data; Bonds Flat

The Dow (+0.6%), NASDAQ (+0.9%) and S&P 500 (+1.1%) each gained modestly for the week, with the S&P 500 reaching new highs late in the week.  Meanwhile, taxable bonds and tax-free municipal bonds were roughly flat for the week.  The yield on the 10-year Treasury bond rose 0.01%, finishing the week at 4.15%.

There was numerous positive economic news reported last week.  Global manufacturing and services showed improvement internationally, as well as in the US.  The US also exhibited continued strength in its larger services side, with the US economy looking again as the best and strongest in the world.  The 4th quarter US GDP also posted a 3.3% increase, blowing away economic estimates.  Lastly, the Fed-favored inflation gauge fell below 3% for the first time in three years, with 3-month and 6-month annualized inflation values below the Fed target of 2%.  As a result, the US economy ended 2023 as good as it could get.  The Fed meets this week, and it is widely expected that they do not raise or lower interest rates, but all eyes and ears will be on the Fed and what Chairman Powell implies regarding the Fed’s future intentions. 

We are now in the teeth of quarterly corporate earnings season, with about 25% of the companies having already reported.  This week will include many of the big tech stocks, but Tesla (one of the Magnificent Seven) missed its earnings estimate last week.  As a result, the stock was punished about 14% last week, and is now down 26% YTD.  So far, earnings are down from a year ago, yet the stock market is up.  This has resulted in the highest PE ratio for the market since 2021, which generates concerns that the stock market may be overvalued.

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