Empire State of Mind?

It was a shortened trading week last week, as markets observed Martin Luther King Jr. Day. It was an even shorter work week for many, as Mother Nature dished out two winter storms that snarled commuters and productivity. While the cool of the windchill was record breaking outside, the halls of Wall Street were hot and the S&P500 broke an all-time high on Friday before backing off as the session closed.

Weekly Performance

Data Source: Factset® Performance Period: 1/15/2024 1/19/2024

In economic news, the Empire State Index1, which is a survey of manufacturers in New York state tracking expansionary economic conditions, came in sharply negative and under consensus estimates. The index was expected to print at -6.5, but results came in at -43.7. A negative value for the index represents contractionary business conditions. Conversely, retail sales for December, a highly anticipated print, came in sharply above expectations, indicating the holiday sales season was stronger than expected. Retail Sales2 came in at 0.60%, over expectations of 0.4%, and a prior print of 0.35% in November. Lastly, Housing Starts3 came in over expectations but down month over month, at 1,460k. We see this continued housing supply constraint as an interesting component impacting inflation. Higher rates, the Fed’s main tool for combating inflation, create more difficult conditions for housing development and sales.

The next FOMC meeting is scheduled for January 30-31, with the policy rate announcement and press conference at 2PM and 2:30PM respectively on the 31st. Markets are poised to simply hear rate guidance for the year, with no expected rate movement at the January meeting. Rates currently sit between 5.25-5.50%. Especially in light of the Empire State Index results, the question ahead becomes less “if” and more “when” rate cuts may happen this year. The CME FedWatch Tool is showing year-end policy rate probabilities clustered at a 96.4% probability of December FOMC meeting policy rates ending between 3.50% to 4.50%. A 1% band (3.5%-4.5%) is a large range of policy and will likely leave the markets guessing throughout the year.

One side effect of the Fed’s fight against inflation is a sharp decrease in demand for collectors’ items. As consumers feel budgets tighten, spending on luxury watches, trading cards, wine, coins, and other valuables has ebbed leading to prices softening. Although not quite the Beanie Baby crash of the new millennium, it is a reminder to tread with caution on collectibles.

In geopolitical issues, the Houthi attacks in the Red Sea continue to be an issue impacting shipping and global supply chains. The United States and United Kingdom have conducted strikes on Houthi facilities attacking vessels, but the organization continues to attack civilian shipping vessels. The diversion of goods around the Red Sea is raising shipping costs, availability, and impacting perishable goods. In The Russo-Ukrainian War, Ukraine continues to press the attack on Russian soil with a drone strike on a Russian oil Depot. In the US, Congress has continued its trend of “punting” instead of “scoring,” as bipartisan support came together Thursday to pass a continuing resolution to fund the U.S. Government only into March. We will remain watchful for what progress is made on the issue over the coming weeks.

The winter wonderland that evaded much of the country over the last 18 months is breathtaking, both figuratively and literally. Winter activities, frosted landscapes, and snowmen are balanced by the strains of shoveling, chilly noses, and wet socks. In the end, snow, like rain, brings water to help life continue on earth. Isaiah 55: 10-11 reminds us: “As the rain and the snow come down from heaven, and do not return to it without watering the earth and making it bud and flourish, so that it yields seed for the sower and bread for the eater, so is my word that goes out from my mouth: It will not return to me empty, but will accomplish what I desire and achieve the purpose for which I sent it.” The snow is finally back and so is the market, but neither is guaranteed to last. Accumulations should be cherished and stewarded properly.

Sources: Yahoo Finance, Reuters.com, and JP Morgan Market Insights. Securities offered through American Portfolios Financial Services, Inc. of Holbrook, New York, 631.439.4600,(APFS), member FINRA, SIPC.  Faithward Advisors is not owned or operated by APFS. Faithward Advisors offers Investment Advisory services through Ambassador Advisors, an SEC Registered Investment Advisor. Dream More, Plan More, Do More is a registered trademark of Faithward Advisors, LLC, Reg. U.S. Pat. & Tm. Off. Any opinions expressed in this forum are not the opinion or view of Faithward Advisors or American Portfolios Financial Services, Inc. (APFS). They have not been reviewed by either firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.