Friday rally delivers record

The record is in the bag. Now we’ll see if the market can build on the move.

Despite stronger-than-anticipated economic data and a Fed in “we’re in no rush to cut rates” mode, the US stock market pushed to fresh record highs last week.

What was looking like a flat, holiday-shortened week last Thursday turned into something quite different on Friday. The S&P 500 (SPX) rode its second-biggest up day of the year to new all-time highs after roughly a month of rangebound trading:

The headline: Stocks defy Fed (again).

The fine print: Amid robust economic numbers (including retail sales, industrial production, jobless claims, home sales), the Fed continued to signal it wouldn’t hurry to cut rates. Fed Governor Christopher Waller made it explicit: “I see no reason to move as quickly or cut as rapidly as in the past.”¹ Atlanta Fed President Raphael Bostic said he expected the central bank to begin cutting rates in Q3.

The moves: Spirit Airlines (SAVE) fell 62% to $5.70 last Tuesday-Thursday after a judge blocked (for now) its acquisition by JetBlue (JBLU), then bounced 17.2% on Friday. The benchmark 10-year T-note yield climbed every day last week, closing Friday above 4.1%, its highest close since December 12.

The scorecard: The Nasdaq 100 (NDX) tech index led the market for a second week, while the small-cap Russell 2000 (RUT) trailed it for a fourth:

Sector returns: The strongest S&P 500 sectors last week were tech (+4.3%), communication services (+2%), and financials (+1.3%). The weakest sectors were utilities (-3.7%), energy (-3.1%), and real estate (-2.1%).

Stock movers: HomeStreet (HMST) +39% to $14.87 on Tuesday, Kamin (KAMN) +101% to $45.05 on Friday. On the downside, Spirit Airlines (SAVE) -47% to $7.92 on Tuesday, iRobot (IRBT) -27% to $17.26 on Friday (and -14% to $23.62 on Thursday).

Futures: March WTI crude oil (CLH4) posted a modest gain last week, closing Friday in the upper half of its recent trading range at $73.25. February gold (GCG4) lost a little ground, closing Friday at $2,029.30.

This week traders will get their first look at Q4 GDP, along with durable goods and the PCE Price Index (Fed inflation):

●Monday: Leading Economic Indicators Index
●Wednesday: S&P Global Manufacturing and Services PMIs (flash)
●Thursday: Q4 GDP (initial estimate), Durable Goods Orders, Trade Balance in Goods (advance), Wholesale and Retail Inventories (advance), New Home Sales
●Friday: Personal Income and Spending, PCE Price Index, Pending Home Sales

Earnings season warms up with numbers from Netflix (NFLX) and Tesla (TSLA). Here are a few other highlights from the week’s lineup:

●Monday: Logitech (LOGI), United Airlines (UAL)
●Tuesday: General Electric (GE), Halliburton (HAL), Johnson & Johnson (JNJ), Lockheed Martin (LMT), Procter and Gamble (PG), Verizon (VZ), Intuitive Surgical (ISRG), Netflix (NFLX)
●Wednesday: Abbott Labs (ABT), Freeport-McMoRan (FCX), General Dynamics (GD), Kimberly-Clark (KMB), AT&T (T), Teledyne (TDY), International Business Machines (IBM), Lam Research (LRCX), Teradyne (TER), Tesla (TSLA)
●Thursday: American Airlines (AAL), Archer Daniels Midland (ADM), Eagle Materials (EXP), Southwest Airlines (LUV), Northrop Grumman (NOC), Intel (INTC), Levi Strauss (LEVI), T-Mobile (TMUS), Visa (V)
●Friday: American Express (AXP), Colgate Palmolive (CL), Norfolk Southern (NSC)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

So far, at least, emerging markets have been in sync with Morgan Stanley & Co.’s warning about potential underperformance in early 2024.² As of Friday, the MSCI Emerging Markets Index was down 5.1% for the month—its worst return at this point in the year since 2016.

On a longer-term basis, Morgan Stanley & Co. strategists recently discussed three themes with the potential to impact portfolios for many years. The inclusion of AI and decarbonization should be no surprise, but investors may be interested in the potential ripple effects of the third theme, human longevity.³

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¹ CNBC.com. Fed’s Christopher Waller advocates moving ‘carefully’ with rate cuts. 1/16/24.
² MorganStanley.com. 2024 Investment Outlook: Threading the Needle. 11/22/23.
³ MorganStanley.com. Three Investment Themes for 2024 and Beyond. 1/17/24.