Market Highlights

Economic

• December consumer confidence rose to 110 from a revised 101 in November as rates eased
• Retail sales rose 0.6% in December, with auto sales at 15.5 million units, above estimates
• Non-farm payrolls increased to 216,000, above estimates of 175,000
• Unemployment held steady at 3.7%, with underemployment rising to 7.1%
• U.S. industrial production rose 0.1% in December, after a 0.2% gain in November
• Housing prices are firming, as the 30-year fixed mortgage rate dropped to 6.8%
• New home construction numbers were 1.49 million in December, above estimates
• Existing home sales were down at 3.78 million in December, with mortgage rates still high
• U.S. manufacturing is flat, with December ISM at 50, below estimates
• Personal income was up 0.3% and consumer spending was up 0.7% in December
• GDP was up 3.3% in the fourth quarter of 2023, with 3rd quarter growth at 4.9%

Inflation

• December core inflation rose 3.4% for CPI and 1.0% for PPI, above estimates
• Crude oil rose to $76, as the war expands in the Middle East
• Inflation may be starting to rise slightly and remains above the Fed target of 2%

Monetary Policy

• The Fed held the Fed Funds rate at 5.25% - 5.5% and the Discount Rate at 5.5%
• The Fed is expected to cut rates in the March-June timeframe but could hold off till later in year
• The Fed will remain data dependent, as more economists move to a soft landing scenario

International

• Iran proxies have attacked U.S. bases and targets over 150 times, killing and injuring U.S. troops
• China's Xi Jinping and President Biden met in California to reopen relations
• The Dollar has come down versus other currencies as BRIC's try to create an alternative
• Ukraine and Israel are looking for more aid from the U.S., Congress wants our border shut first

Interest Rates

• Ten-year Treasury yields fell from 5.0% to 3.8%, and now stand at 4.11%
• Secure overnight finance rate SOFR, inter-bank lending standard, is 5.35%
• Mortgage rates continue to fall from 8%, with the 30-year fixed to 6.88%
• Yields on international debt have remained positive, ending the free-money period

Earnings

• S&P 500 companies reporting with 69% beating on earnings and 68% on revenues
• Markets are forward-looking and are focused on 2024 earnings of $250 for the S&P 500
• 2024 earnings are projected to be up 8% from a year ago and 11% higher for 2025

Market Outlook

• In 2023, the S&P 500 was up 26.3% including dividends
• Market volatility has decreased with yields breaking down as Fed is expected to cut rates
• Real Estate, Technology, and Financial were the best performing sectors in Q4
• The S&P 500 is trading at 19.5 times forward earnings, above its 25-year average

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