Last week brought on a fog that covered more of the United States than at any time in the last twenty years. The outside weather mirrored the markets with a foggy uncertainty in a financial narrative. Bulls were celebrating a strong GDP and low PCE, while bears raised concerned voices over the weak Q4 earnings, as well as the impact on Chinese stock market stimulus.
Over in China, the China MSCI index has plummeted close to 60% from its peak in February 2021, despite the government’s intervention attempts. With three consecutive years of loss, the Chinese and Hong Kong stock markets are looking at a staggering $6 trillion decline. Their governments plan to lower cash reserves required by banks, in hopes of freeing up balance sheets for more investment activities. In addition, starting this week, a variety of Chinese exchanges will restrict security lending for strategic investors with a goal of making short selling (betting against the market) more difficult.
Data Source: Factset® Performance Period: 1/22/2024 1/26/2024
Back at home, the bulls remain elated by the econometric news, with the preliminary Q4 GDP data printing at 3.3%. Despite the decline from 4.9% in Q3, it was a welcomed surprise, exceeding the 1.8% initial expectation. The PCE prints on Friday also revealed a retreat in inflation in December, as the Core PCE deflator2 and headline PCE deflator both came in at 0.17%. The bears’ only narrative was excessive consumer consumption, as Friday saw Person Consumption Expentiture2 print at .70% and Personal Income at .30%. The difference between these two is fueled by debt and/or savings, and higher debt spending is the likely culprit.
Looking towards next week, the FOMC meeting will start on Tuesday and conclude with the policy rate decision on Wednesday. While rates are predicted to remain unchanged, market participants are keeping eyes on the narrative as well as rate cut schedules for the remainder of the year.
In geopolitical news, we are continuing to see hope within the Israel Hamas war, as progress is being made for a prolonged cease fire and release of over 100 hostages. In the Russo-Ukrainian war, unconfirmed reports suggest that Russian President Vladimir Putin may be reaching out through backchannels to end the conflict. Back at home, tensions in Texas escalated over States’ rights to use razor wire to secure the border. Texas Governor Greg Abbot publicly issued a rebuke to the Biden administration calling the practice a Constitutional right to defend from invasion. This conflict has a Supreme Court opinion written all over it.
As the fog clears from last week, we are once again seeing familiar landmarks and brighter days. May this be a reminder that, even during the uncertain times of war and the murky appearance of our economic state, the Son gives us clarity, reassurance, and direction. “We don’t yet see things clearly. We’re squinting in a fog, peering through a mist. But it won’t be long before the weather clears and the sun shines bright! We’ll see it all then, see it all as clearly as God sees us, knowing him directly just as he knows us!” – 1 Corinthians 13:12
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