Happy Friday!
Investors are keeping a close eye on Q4 earnings and the debate continues on when the first interest rate cut will come. Microsoft is the ‘World’s Most Valuable Company’. Coming soon – just the facts on highway signs and out-of-this-world visitors welcomed to Lexington, KY.
#1 – Weekly Market Recap – Stocks markets saw relatively muted returns during the holiday-shortened trading week amidst strong economic data and several earnings reports. Through Thursday’s close, the S&P 500 was close to flat, down -0.06%, while the Dow Jones fell -0.33%. However, the NASDAQ rose +0.9% reaching a record high fueled in large part by advances in the technology sector.
The S&P 500 closed at 4,780 on Thursday, just 0.35% shy of its all-time closing high of 4,796 set more than two years ago on January 3rd, 2022. The market appears to be opening higher on Friday morning; if the market strength continues throughout the day, the S&P 500 could be poised for a record close.
Despite a broader cooling, timely indicators for the US labor market continue to show signs of strength. New data on Thursday showed that only 187,000 people filed for unemployment last week – the lowest level since September 2022 and indicative of companies continued desire to retain their employees.
Fourth quarter corporate earnings releases in the coming weeks will play a crucial role in shaping investor sentiment for 2024. Investors are eagerly awaiting financial results, and next week approximately 17% of S&P 500 companies are scheduled to report earnings.
#2 – Reality of Rate Cut Rapidity – A spout of strong economic data and hawkish Fedspeak appears to be tempering some investors’ hopes of a rate cut from the Federal Reserve coming as early as March this year.
Following the Federal Reserve’s unofficial ‘pivot’ in November where they projected three rate cuts in 2024, many investors grew increasingly optimistic that the Fed was going to cut rates quickly and meaningfully. As shown in the graph below, by the new year, investors were expecting an 85% chance of a rate cut in March and six rate cuts by December.
The catch, however, is that the Fed is ‘data-dependent’, and investor expectations may have gotten ahead of the current reality. The first three weeks of 2024 brought data that showed hotter than expected inflation, strong retail sales growth, and a strong employment report. Federal Reserve officials have also made public statements that they will proceed cautiously with cuts; in a speech on Tuesday, Fed Governor Waller acknowledged that cuts are coming but cautioned on how expedient these cuts may be:
“When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully…
In many previous cycles … the FOMC cut rates reactively and did so quickly and often by large amounts. This cycle, however, … I see no reason to move as quickly or cut as rapidly as in the past.”
Fed Governor Christopher Waller, 1/18/2024
The combination of strong economic data and caution from the Fed appears to have diminished the market’s expectation of a rate cut by March, with current implied odds at 53%. Investors appear to still be expecting 5 to 6 interest rate cuts in 2024, however; this indicates that investors are currently debating the timing of potential cuts, but have not yet debated the magnitude of cumulative rate cuts.
At DSG Advisors, we think that continued ‘hot’ economic data could further temper market expectations for rate cuts.
#3 – Microsoft Reigns Supreme – Microsoft has captured the distinction of “World’s Most Valuable Company” after the company surpassed Apple’s total market capitalization last Friday.
As of Thursday’s close, Microsoft is worth approximately $10.7 billion more than Apple*. While that sounds significant, it represents just a 0.36% difference between the two companies, which are worth roughly $2,927,345,000,000 and $2,916,577,000,000 respectively. Yes, that’s $2.9 trillion each.
For context, the five largest companies in the world (Microsoft, Apple, AramCo, Alphabet, and Amazon) are now worth $11.3 trillion dollars – about 15% of the world’s stock market’s capitalization, which encompasses over 10,000 publicly listed companies around the globe.
The consolidation of market value into a small number of ‘Mega Cap’ companies, known as market concentration, has garnered investor attention – especially after a group of the seven largest US stocks known in the media as the ‘Magnificent 7’ saw strong returns in 2023. Apple and Microsoft now account for 13% of the total worth of publicly listed companies in the United States, more than double the 5.5% they accounted for 5 years ago.
*(Early morning trading on Friday shows Apple regaining it’s ‘king of the hill’ status.)
#4 – No Joke – Soon the humorous, quirky or thought-provoking electronic signage on highways across the country will be a thing of the past.
The US Federal Highway Administration came out last month with a new 1,100 page manual which includes rules spelling out how signs and other traffic control devices are regulated. States have been given two years to comply with the new regulations.
Highway Administration officials said overhead signage with references to pop culture, obscure meanings or intending to be funny will be banned beginning in 2026 because they can be misunderstood or distracting to drivers. They said signs should be “simple, direct, brief, legible and clear” and should only be used to communicate important information.
Among some of the humorous signage that will be disappearing “Hands on the wheel, not your meal,” from Arizona; “Visiting in-laws? Slow down, get there late,” from Ohio; and “Use Yah Blinkah” in Massachusetts.
#5 – Welcome ET! – A Kentucky city is looking beyond planet Earth in an effort to boost tourism. The Lexington Convention and Visitors Bureau used an infrared laser to beam a message into space inviting extraterrestrial visitors to come and visit Lexington.
The message meant to entice visitors says, “The first thing you’ll notice as you descend through Earth’s atmosphere above Central Kentucky is the lush green countryside that surrounds Lexington’s vibrant city center. That’s our famous bluegrass.” It goes on to describe what makes Lexington unique – the rolling hills, horse farms and bourbon as well as places to stay, dine and shop.
The idea for the out-of-this-world campaign came from recent media attention on UFOs and advances in deep space imaging, which have fueled the belief that there may be other life in the universe. The Visitors Bureau said it worked with scientists to beam the message toward planets that could potentially support life some 40 light years away.
However, it may take a while to get a response. It will take about 40 years for the message to reach its target and it could take just as long to get a response.
In the meantime, the agency says earthly travelers are invited to visit!
Have a great weekend!
Denver & the DSGCA Team