Markets Blog
David Matzko, LPL Research
Weekly Market Performance for the week of February 12, 2024. Hotter-than-expected inflation data this week caused investors to reprice Federal Reserve (Fed) rate cuts further into the future. Treasury yields advanced, weighing on longer-duration sectors such as technology. The small cap Russell 2000 was a bright spot as most other major market averages declined. Oil rallied 3%, while natural gas continued to struggle against a backdrop of underwhelming heating demand and excess supply..
Index Performance

U.S. and International Equities
Markets Mixed: The S&P 500 Index finished near the flatline this week despite stickier-than-expected consumer and producer inflation and disappointing retail sales data. Rate-cut expectations were moved out from May to June, pushing Treasury yields higher across the curve. Benchmark 10-year yields rose to as high as 4.33%. Stocks did enter the week overbought, with the S&P 500 up 14 of the last 15 weeks (up over 20% during that time), a ratio that has only surfaced five other times since 1928.
With the S&P 500 up 20.3% off the low on October 27, 2023, a pause or pullback would not be surprising, especially with momentum and market breadth deviating from the latest rally. But now that the Fed’s rate cut expectations are roughly aligned with where LPL Research believes they should be, stocks can increasingly take cues from improved fundamentals. Still, we must continue to watch rates amid the possibility inflation remains sticky and delays the start of cuts. Meanwhile, huge amounts of Treasuries are hitting the market to finance the deficit and may put upward pressure on yields.
Small Caps Shine: The Russell 2000 Index is this week’s best performer, even after the small cap focused index witnessed its worst daily decline since June 2022 on Tuesday. Small caps have struggled this year due to the macroeconomic risks and a weak earnings growth outlook. Moreover, Strategas noted that only one stock, Super Micro Computer (SMCI), accounts for nearly 75% of the Russell 2000 Index’s year-to-date gains.
According to the most recent American Association of Individual Investors (AAII) survey, investor bullish sentiment dropped from 49% to 42% as neutral and bearish investor sentiment gained ground. That said, the percent of bullish investors remains well above the long-term historical average of 37.5%
Fixed Income Lower: The Bloomberg Aggregate Bond Index lost ground as rates rose following the uptick in inflation in January. High-yield corporate bonds also finished lower.
With yields still above longer-term averages, strong investor demand is keeping spreads contained despite the recent glut of issuance. Across the ratings spectrum, corporate treasurers see current spreads as attractive and desire to satiate the strong demand with active issuance.
So far this month, $60 billion was issued into the investment grade (higher grade) corporate market, which suggests that February issuance may significantly exceed the recent February $107 billion average, as was the case in January, where supply was well above the historical trend. So far, the market has absorbed this supply easily with higher-grade spreads currently at 0.95%, which is among the lowest levels since 2002. We do believe current spreads are too tight, though we don’t expect a strong sell-off in the near term.
The environment broadly remains supportive of credit risk. Economic growth should slow but not collapse, which is typically good for credit. But credit is not cheap. Despite high yields, LPL Research believes that tighter spreads reflect a market better suited for investors with at least a three-to-five-year time horizon who can tolerate potential volatility.
Commodities Mostly Lower: West Texas Intermediate prices advanced for a second straight week, pushing oil back above the closely watched 200-day moving average (dma).Gold held support above $2,000. An uptick in the dollar and higher rates have weighed on the yellow metal.
Natural Gas Fundamentals Deflating: Wednesday marked the 8th consecutive daily decline for natural gas. The commodity has pulled back over 20% during this period, representing the longest consecutive losing streak since October 20, 2023.
In addition, companies have not curtailed production, and with the lack of a durable demand surge from colder weather, prices could continue to weaken. Regardless of the supply/demand imbalance, according to Strategas, a consecutive daily decline of this magnitude is rare, with only 30 occurrences taking place since 2000.
Moreover, the Biden administration’s announcement last month to freeze new approvals for liquefied natural gas (LNG) shipments, putting downward pressure on shares of energy companies with exposure to the LNG export market. Prices may remain volatile given the administration can actively restrict LNG exports and influence production and long-term profit potential.
Economic Weekly Roundup
January Consumer Prices: Consumer prices rose 0.3% in January after rising by a downwardly revised 0.2% in December. Higher shelter prices contributed over two-thirds of the monthly increase, and prices also increased for car insurance and medical care. Used vehicles and clothing prices fell from a month ago. Core prices, ex shelter, rose 2.2% from a year ago, still hotter than the Fed would like to witness.
January Retail Sales: Nominal retail sales fell 0.2% from a year ago, as consumers pulled back marginally on spending. January department store sales fell roughly 7% from a year ago as consumers made the pivot to find more competitive pricing online. Adjusting for inflation, annual retail sales fell -2.4%, which represents the largest decline since April 2023.
Consumers pulled back on purchases for durable goods at physical stores but increased spending at restaurants and online. From this report, we find that consumers are likely becoming more price conscious, and perhaps this is the first sign that the spending splurge is nearing its end.
U.K. Inflation Steady: U.K. inflation held firm at 4% year-over-year in January as prices eased for furniture and household goods in addition to food and non-alcoholic beverages. Core CPI, which excludes food, energy, alcohol and tobacco prices, came in at an annual 5.1%, slightly below the FactSet-tracked consensus forecast.
U.K. Finance Minister Jeremy Hunt noted that much progress has been made in curbing price pressures from 11%. Moreover, he noted the important fact that inflation never declines in a perfect straight line.
German Economic Sentiment: The headline German ZEW Economic Sentiment Index improved from January to a reading of 19.9 in February. Economists surveyed by FactSet were expecting a 17.5 reading. That said, the Current Situation Index declined to -81.7 in February, missing economists’ estimate of -79.0.
Presently, the German economic landscape is challenged as inflation has receded more slowly than in the United States. That said, more than two-thirds of survey respondents expect the European Central Bank to cut interest rates over the next six months in light of falling inflation.
Weekly Employment Report: Initial claims came in below analysts’ expectations and the prior week’s reading while continuing claims came in above. LPL Research continues to believe the labor market is expected to further loosen over the coming months as companies respond to slowing demand, partly driven by the lagged effects of tighter monetary policy.
Week Ahead
The following economic data is slated for the week ahead:
Tuesday: Leading indicators (Jan)
Wednesday: Federal Open Market Committee (FOMC) Minutes (Jan)
Thursday: Initial and continuing unemployment claims, Purchasing Managers’ Index (PMI) Composite (Feb), S&P Global PMI manufacturing and services (Feb)
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