Dow gained 69 but off earlier highs, advancers over decliners 2-1 & NAZ rose 82. The MLP index added 1+ to 261 & the REIT index went up 3+ to 381. Junk bond funds rose & Treasuries were purchased after the strong GDP report, reducing yields (more below). Oil climbed 1 to the 76s & gold added 4 to 2020.
AMJ (Alerian MLP Index tracking fund)
The US economy grew at a faster pace than expected at the end of 2023, underscoring its resilience even in the face of still-high inflation & steep interest rates. GDP, the broadest measure of goods & services produced across the economy, grew by 3.3% on an annualized basis in the 3-month period from Oct thru Dec, the Commerce Dept said in its first reading of the data. That is far higher than the 2% increase forecast by Refinitiv economists, although it marks a notable drop from the rapid 4.9% pace seen during the 3rd qtr. Consumer spending, which accounts for about 2/3 of GDP, continued to power economic growth during the 4th qtr. It rose 2.8% for the period, down just slightly from the previous qtr. Increases in private inventory investments, a boost in federal gov spending & a jump in non-residential fixed income also helped to boost GDP numbers. However, high mortgage rates continued to drain demand from the real estate market, with investment in housing plunging 27% for a 2nd straight qtr. State & local gov spending also helped to fuel the expansion, climbing 3.7% during the 4th qtr. Gross private domestic investment rose 2.1%, another contributor to growth. The economy has remained solid even as experts predicted that the Federal Reserve's aggressive interest rate hike campaign would send it spiraling into a recession. For all of 2023, the economy expanded 3.1%, up less than 1% in the previous year. However, there are signs that growth is finally beginning to slow in the face of tighter monetary policy. Job growth is moderating. The housing market, which is vulnerable to higher interest rates, is trapped in a prolonged downturn & consumer spending has shown signs of cooling off. Many economists expect to see further cooling in coming months as higher interest rates continue to work their way thru the economy.
GDP growth comes in stronger than expected at the end of 2023
Treasury yields fell after a report showed faster than expected economic growth in the 4th qtr failed to push inflation higher. The yield on the benchmark 10-year Treasury note dropped 5 basis points to 4.13%, while the yield on the 2-year Treasury note dipped 3 basis points to 4.35%. Yields move inversely to prices & 1 basis point equals 0.01%. Gross domestic product, a measure of all goods & services, increased at a 3.3% annualized rate in the 4th qtr of 2023 which compares to the estimate for a gain of 2%. On the inflation front, core prices for personal consumption expenditures (PCE), which is the Federal Reserve's preferred gauge, rose 2% for the period, while the headline rate was 1.7%. On an annual basis, the PCE price index rose 2.7%, down from 5.9% a year ago, while the core figure excluding food & energy posted a 3.2% increase annually, compared with 5.1%. Meanwhile, a weekly labor market report suggested the jobs market may be slackening. Initial jobless claims totaled 214K, an increase of 25K from the previous week & ahead of the estimate for 199K.
10-year Treasury yield pulls back after Q4 GDP shows slowing inflation, strong growth
A significant chunk of US small business owners say 2024 is a "make-or-break" year for them, according to fresh data that found nearly 1 in 3 are concerned their companies might not make it thru the year. Slack released the results of a recent survey of small business owners that found 32% of respondents are worried their business will not survive through the end of the year & 38% saying they are more concerned about their company heading into this year than last. While 71% of the 2000 entrepreneurs polled said they are optimistic about the state of their businesses, the top concerns they cited were inflation & economic conditions (47%), the need to raise prices (32%) & increased competition (24%). "The margin for success is often razor thin, meaning small businesses need to be forward-looking, resilient and adaptable even amid current economic climate challenges," said Jaime DeLanghe, senior principal of product management at Slack. "While our survey found most performed better than expected in 2023 and are optimistic about 2024, it shows many are still looking for ways to improve results despite limited resources and technological capacity." The survey also found that technology, including artificial intelligence, helped many small businesses exceed their owners' expectations. 49% said their companies performed better than they expected, while 21% said their companies fared worse. 26% of the owners surveyed said they used new technology in 2023. Of those, AI was the top new tool cited (50%), followed by tech for productivity or collaboration (41%) & communication (34%). 35% of respondents said they are excited to add or update new tech tools to their operations this year, with more than ½ of those saying new software is on their purchase list for 2024. The AI frenzy from last year is expected to carry thru this year, too
One-third of small business owners worried their company won't survive 2024
Market expectations for the Federal Reserve were to cut interest rates as early as Mar. But that may be premature. Economic strength gives strength to the hawks on the Fed who are more cautious about interest rate cuts. Early today the Dow jumped to a 200+ gain, then it pulled back to up 69. There was also limited buying of safe haven gold & Treasuries. This could be a choppy day for trading while investors assess the implications of the GDP data.Dow Jones Industrials
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