Several highly significant pieces of economic data were released over the past week with the initial estimate of fourth quarter gross domestic product (GDP) growth at the forefront. With a reading of 2.3% the estimate was slightly lower than the consensus expectation of 2.4%, according to FactSet Research. Other estimates for the period were as high as 2.7%. For calendar year 2024 GDP is forecast to deliver a growth rate of 2.8%. The largest contributors to the fourth quarter GDP increase were consumer spending and government expenditures.
Also released was inflation data, specifically readings for the PCE Deflator. The Core PCE Deflator is the preferred measure of inflation by the Federal Reserve and its result for December showed a measure of ongoing progress in the effort by the Fed to bring the measure’s annual rate down to 2.0%. For the month it rose 0.16% versus a consensus outlook of 0.2%. The year-over-year increase came in right on top of the consensus estimate at 2.8% and was unchanged from the prior month. While continued incremental reductions in the rate of inflation are anticipated in 2025, the earliest cut in the Fed Funds rate is currently not expected to occur until June.
ISM surveys came in above the 50.0 level for the month of January for both the Manufacturing and Services sectors. These reports represent the first time both measures have registered a reading above 50.0 in over two years signifying both are currently indicating positive economic growth.
Financial markets experienced positive returns for the week as both stocks and bonds moved higher. For domestic markets small cap stocks continued their leadership with the Russell 2000 Index returning 1.2% for the week. We stated that they continued their leadership because they have also provided higher returns relative to large cap issues for the year-to-date period. International equities also moved higher as the MSCI EAFE Index of foreign developed markets rose 0.1% and the Emerging Markets Index rose 0.6%. EAFE’s year-to-date return of 4.1% currently exceeds the return from domestic shares as the Russell 3000 Index has produced a lower result of 3.6% for the period.
Other major events for investors occurring this week included the ongoing reporting of fourth quarter corporate earnings. Releases this week included companies from a variety of sectors and included market bellwethers, such as Apple, Inc. and Alphabet, Inc. Thus far, a majority of companies are reporting positive earnings surprises relative to expectations and the forecasted aggregate increase is expected to be 13.2% for the quarter, according to FactSet.
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Sources: BTC Capital Management, FactSet Research Systems Inc., Federal Open Market Committee (Federal Reserve) LSEG I/B/E/S, FTSE Russell (an LSEG Group company), S&P Global, U.S. Bureau of Labor Statistics, U.S. Census Bureau
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