A dearth of economic data last week kept markets focused on the Fed and the earnings of Nvidia, the leading AI chipmaker. Fed minutes language have not changed much since the start of 2024. While reported as if the Fed is increasingly patient about cutting rates, it is Fed reporters and traders who are changing their tune, coming into alignment with consistent FOMC messaging since at least December. Bond market yields pushed to year-to-date highs, while equities moved to a record on Thursday following a massive earnings beat and strong guidance from Nvidia.

The S&P 500 advanced 1.6%, the tech-heavy Nasdaq Composite gained 1.4%, and the Dow Jones rose 1.3% for the week ending 2/23/24. Each of the three indices closed at or near their all-time highs. Of note, the Japanese stock market also made a record high last week, clearing the previous high set back in December 1989.Corporate earnings rose slightly last year while the stock market gained more than 26%, anticipating a more friendly Fed and healthy earnings growth. To justify the gain, profits this year will need to make good on those expectations, and the latest quarterly earnings announcements suggest that is a reasonable outcome. After last week, 92% of companies have reported fourth-quarter 2023 results, with a more than 7% upside surprise versus consensus expectations. Based on the results, S&P 500 profits rose 6.8% year-over-year in the fourth quarter, providing an encouraging start to 2024.

S&P Global Manufacturing and Services PMI’s showed a nearly identical rate of expansion in both sides of the economy. Manufacturing rose to 51.5, 0.8% above the consensus estimate, and services fell to 51.3, a full point below estimates. The resurgence in manufacturing after 18+ months of contraction is encouraging. While the declining Leading Economic Indicator (LEI) continues to signal headwinds to economic activity, for the first time in the past two years, six out of its ten components were positive contributors over the past six-month period.

Meanwhile, continued jobless claims decreased more than expected in mid-February, remaining at low historical levels. The FOMC meeting notes released last week noted “it will not be appropriate to reduce the federal funds target range until inflation moves sustainably toward 2%.” While rate hikes appear to have ended, the first rate cut is still speculation. Financial markets were predicting a potential cut in May this year; that has moved to out to June.

The economic calendar for the week ahead includes fresh data on new home sales, durable orders, and construction prices. Analysts think bond yields could push higher if inflation expectations return following the higher-than-expected CPU and PPI reports for January.