Market Note – February 12, 2024

By Hightower Great Lakes on February 12, 2024

S&P 500 Crosses 5,000

On Friday, the S&P 500 closed at 5,026.61 – its first time crossing 5,000. Aside from the hyperbolic milestone, this does not mean all that much.

It has been a long climb back to this level; the S&P 500 was above 4,800 in early 2022, before its impending downturn that same year. Timing the market is a fool’s game, and over time, markets should generate positive returns. We are seeing equity market appreciation as risk-off sentiment subsides.

Chart 1: S&P 500 Upward Momentum to Begin 2024[1]

The strong performance since October 2023 reflects a stronger-than-expected economy and lower inflation, which is driving better-than-expected earnings. ISM Services expansion accelerated in January and recorded its highest level since September.

January ISM Manufacturing is near expansionary level and recorded its highest level since October 2022. Earnings growth in the fourth quarter is expected to expand +3.8% y/y, higher than the +1.8% expected at the end of December. Expectations are also high for 2024, with earnings expected to grow +10.8% y/y in 2024, compared to +2.0% in 2023 and +4.5% in 2022.

Procter and Gamble (PG) margin expansion is tied to productivity, pricing and lower inflation. The company reported a higher U.S. sales volume, driven by better consumer sentiment.

Dissimilar to PG, PepsiCo (PEP) missed revenue expectations for the first time in four years – blaming consumer budgets and pushback on pricing after raising price quickly throughout the past two years. While companies are not reducing prices, there is constraint on how much further price can be pushed for certain products.

Stocks follow earnings on the way up and on the way down. Our biggest secular themes are related to housing, cybersecurity, onshoring, aviation and anything tied to the consumer. Lower inflation is good for technology and consumer companies. We will receive January CPI data this week; it is expected to be 2.9%.

In the final week of January, equity markets received their first week of positive fund inflows this year. The “fear of missing out,” or FOMO, is beginning to spread and risk-off investors may begin winding down their excessive $6.6 trillion in money market funds.

David Rubenstein’s Biggest Investment Themes

Investment Solutions hosted David Rubenstein, co-founder of The Carlyle Group and new owner of the Baltimore Orioles, at Hightower’s New York office this week. It was an engaging conversation, in which he emphasized confidence in the big U.S. banks, pessimism around what the fiscal deficit means for future generations, and optimism around the economy and market opportunities.

He also humbly recalled that inflation reached 19% when he was part of the Carter Administration – and he never made it back to the White House since.

Mr. Rubenstein’s biggest, long-term themes for investment ideas included quantum computing, biotechnology and healthcare. Mr. Rubenstein also emphasized that when everything seems to be going right is when he gets nervous. We say something similar: it is when we do not worry that we should actually worry.

With many parts of the economy moving in the right direction, things appear to be getting better – markets are moving higher, inflation is lower, and consumers have jobs and better wages. We are staying acutely aware of the many moving parts, and it is important to refuse complacency and stay disciplined.

Rate Cut Expectations Pull Back

The odds of a March Fed rate cut have fallen to 19% from 58% at the start of the year. U.S. Treasuries tumbled throughout the week, following a strong January ISM services report, a packed corporate issuance slate adding duration pressure and comments from Fed speakers that continued to push back against cutting too soon.

The U.S. 2-year yield increased 6 bps, the 10-year increased 10 bps and the 30-year increased 12 bps. High yield spreads remain tight, reaching a new 52-week low last Friday, at +371 bps. Muni yields decreased 10 bps across the curve.

The Week Ahead

Earnings – Tuesday: TAP, MGM, KO, MAR, ZTS; Wednesday: CSCO; Thursday: OXY, DE, CLF.

Economics – Tuesday: CPI (January); Thursday: Retail Sales (January), Industrial Production (January), NAHB Housing Market Index (February), Philadelphia Fed Index (February); Friday: Housing Starts (January), PPI (January), Michigan Sentiment (February).

Return for Selected Indices^[2]

Click here to read last week’s Market Note (2/6).

Disclosures

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors.

All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

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[1] Source: FactSet (chart). As of February 12, 2024.

[2] Source: Bloomberg. As of February 4, 2024.