Market Recap – Week Ending Feb. 2

Strong Earnings, Jobs Reports Push Stock Higher

Overview: Stocks in the U.S. were higher for the 13th of the last 14 weeks last week as the S&P 500 index rose 1.4%, aided by strong earnings reports from big tech and by a strong January jobs report. The report showed an increase of 353,000 new jobs in January, the highest month of job creation in 12 months, well above consensus expectations. In the bond markets, yields rose after the conclusion of the latest Federal Reserve meeting as Fed Chair Jerome Powell indicated in his comments that March may be too early to begin rate cuts. The 2-Year and 10-Year U.S. Treasury yields ended the week at 4.37% and lower at 4.03%, respectively. In an interview with “60 Minutes’ Sunday evening March 4, Powell reiterated his earlier comments, stating, “We want to see more evidence that inflation is moving sustainably down to 2%. Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.” Looking forward to this week, earnings again will be in focus with McDonald’s reporting on Monday and Ford on Tuesday. Eyes also will be on the Middle East, where the U.S. began airstrikes in Iraq and Syria on Friday. Investors will be monitoring oil prices and potential supply-chain disruptions and cost increases as potential ramifications for escalation of tensions in the region.

Update on Geopolitical Risk (from JP Morgan): Last week, the Middle East conflict escalated with the tragic attacks on U.S. troops and more threats on ships in the Red Sea. Along with causing more volatility in oil prices, the conflict is negatively impacting global maritime trade. Just in the past two months, traffic through the Suez Canal, which handled 12-15% of global maritime trade in 2023, has been reduced by 42% according to the UN. This is primarily delaying ships traveling between Europe and Asia, and some factories in Europe have even paused production as they wait on parts from Asia. So far, the disruptions are hardly being reflected in the data due to lagged effects. This week, we point out the Markit global PMI suppliers’ delivery times index, which measures how quickly purchasing managers receive orders from their suppliers. A reading above 50 indicates more delays or supply-chain stress while a reading below 50 indicates faster delivery times. Notably, January was the first month the index has exceeded 50 since February 2023. Still, compared to the post-pandemic period, supply chains are in much better shape today. There is a chance these disruptions could cause a temporary re-acceleration in global core inflation as goods have been the main driver of disinflation recently compared to still-strong services price growth. It will be key to monitor if global central bankers begin to consider these trade disruptions when making policy decisions. While geopolitical events often create more uncertainty, the market impacts are typically short-lived. Investors should realize while alternating to cash or “safer” assets due to global unrest can make the volatility easier to stomach, it often results in long-term underperformance.

Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s, Bloomberg, CNBC

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