The upcoming week promises another wave of significant U.S. economic data, prompting speculation in financial markets about the economy’s resilience amidst the backdrop of the highest interest rates witnessed in over two decades. On Wednesday, the first revision to fourth-quarter gross domestic product (GDP) will be unveiled, providing insights into the nation’s economic growth trajectory. The following day, Thursday, brings the release of January’s data on the Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index.
These reports will be closely monitored by investors and policymakers alike, offering crucial indicators of the economy’s health and potentially influencing market sentiments and monetary policy decisions.
JPMorgan Chase & Co. has revised its GDP tracking estimate for the final quarter of 2023 to 3.3%, aligning with the government’s initial release last month, according to economist Daniel Silver.
Meanwhile, analysts at Morgan Stanley anticipate January’s core PCE to rise by approximately 0.4% on a monthly basis, exceeding December’s 0.2% figure. They predict that inflation will continue on a “bumpy path,” projecting a year-over-year core rate of 2.3% for 2024.
Reflecting on the economy’s strength amid high interest rates, Tom Graff, Chief Investment Officer at Facet in Baltimore, managing assets worth $2.7 billion, suggests a potential shift in the Federal Reserve’s perspective on interest rate norms. Graff emphasizes that if the Fed considers the current fed-funds rate target range of 5.25% to 5.5% as the new norm, it would place greater emphasis on corporate earnings for stock performance. For bonds, Graff indicates potential upside risks for longer-term yields.
Thursday saw the release of a pair of S&P Global surveys indicating above-average economic expansion this month. Coupled with weekly initial jobless-benefit claims dipping to a five-week low of 201,000 in mid-February, these factors sustained the 10-year Treasury yield at its highest level in nearly three months. Investor optimism, particularly in the technology sector, propelled U.S. stocks to surge, with the Dow Jones Industrial Average closing above the 39,000-point mark for the first time ever.
February has witnessed a series of robust U.S. economic indicators, including January’s unexpected nonfarm-payroll gain of 353,000 and a consumer-price index report surpassing expectations.
Tom Graff commented on Thursday, emphasizing the positive impact of robust economic growth across the board. He remains bullish on stocks, contingent upon sustained strong earnings. However, he cautioned that a significant rebound in inflation to the 3% or 4% range would be concerning. Nonetheless, if inflation stabilizes around 2.5% by year-end amid robust economic growth, Graff anticipates continued strong performance in stocks.