Is the Economy doing well?
The unemployment rate sits at 3.7%, the US continues to create new jobs, the stock market continues to melt higher, inflation has moderated, and crowds of people seem to be spending money everywhere.
It’s the cost of money that has many concerned, meaning interest rates.
For years, businesses and consumers were able to borrow at record low rates. This contributed to significant economic expansion and increased household wealth.
Now, for companies to expand, they must spend more in borrowing costs.
As long as the increasing cost can be passed down to consumers, no issue.
Many consumers have postponed purchasing a new home, with mortgage rates are currently north of 7%. Credit card interest rates are high with consumer balances rising quickly. Delinquency rates have been rising on credit cards and automobile loans.
So, can the economy continue to expand based on the current interest rate/inflation environment? So far, the answer has been a resilient yes.
The Markets
Most major market indexes climbed higher last week as the S&P 500 rose .92%, the Nasdaq 1.69%, the Russell 2000 2.8%, however the Dow was flattish, dropping just (.12%).
Foreign stocks rise .71% however emerging markets fell (.22%).
Interest rates stayed range bound with the 10-year US Treasury ending the week with a yield of 4.186%.
Year to date, 9 of the 11 S&P 500 sectors are positive with Technology leading the charge, rising 12.15%, followed by Communication Services 11.40%, Healthcare 7.02%, Financials 6.74%, Industrials 6.33%, Consumer Discretionary 5.23%, Consumer Staples 3.59%, Energy 3.32%, Materials 2.45%, Real Estate (1.74%) and Utilities (3.34%).
From a stock market stand point, it’s positive to see sectors other than technology and communication move higher. Fingers crossed for this trend to continue.
Economic Data Week
With earnings season just about over, attention will turn directly to the economy. Fed Chair Powell will provide his semi-annual monetary policy report to both the House and the Senate. Investors will pay attention for further clues of rates cuts or lack thereof.
Reports this week include the number of job openings and the number of jobs created in January. The estimate is for a positive job gain of 225,000. In addition, Factory orders, Durable goods orders will be front and center.
Between now and next earnings season (mid-April) the focus will be on the economy and interest rates. I would expect a little market bumpiness until we have additional clarity on inflation and interest rates.
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