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Stocks Gain
The S&P 500 posted a fractional decline, snapping a five-week string of positive results that had left the index at a record high. Despite the setback, the S&P 500 remained nearly 22% above a recent low in late October. The Dow finished the week essentially flat while the NASDAQ slipped more than 1%.
Stocks fell and bond yields rose on Tuesday after a monthly inflation report showed that U.S. consumer prices rose more than most economists had expected in January, with the Consumer Price Index’s annual rate coming in at 3.1%. A separate report on Friday reinforced the narrative of continuing inflationary pressures, as wholesale prices rose at the fastest pace in five months.
The latest inflation data dampened investors’ expectations for any interest-rate cuts over the short term, and government bond yields rose for the second week in a row. The yield of the 10-year U.S. Treasury bond closed at 4.30% on Friday, up sharply from a recent intraday low of 3.82% on February 1.
U.S. consumers trimmed their spending more than expected after the holiday shopping season. In January, retail sales fell 0.8% on a seasonally adjusted basis compared with the previous month. In addition, sales figures for December and November were revised lower than the initially reported numbers.
Initial estimates from Japan and the United Kingdom indicated that their economies fell into recessions in late 2023, as they recorded negative growth for the second quarter in a row. In Japan, fourth-quarter GDP fell at an annual rate of 0.4%; in the U.K., the economy contracted 0.3%.
With earnings season nearing an end, expectations for overall performance improved slightly. Net income was expected to rise an average 3.2% compared with the same quarter a year earlier, based on the four-fifths of the S&P 500 companies that had reported results as of Friday plus forecasts for those that hadn’t released results. At the end of the previous week, the growth rate was projected to be 2.8%.
A survey of U.S. consumers’ sentiment about the economy rose for the third month in a row, climbing to the highest level since July 2021. The University of Michigan said its preliminary February sentiment reading rose to 79.6. The figure is up sharply from a recent low of 61.3 in November.
After underperforming large caps in January, U.S. small-cap stocks outperformed their bigger peers by a wide margin for the second week in a row. A small-cap benchmark rose more than 1% for the week; over two weeks, the index was up nearly 4%.
Source: John Hancock Investment Management
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