Last week the S&P 500 broke above the 5,000 level with support from well-received corporate earnings announcements and additional signs of U.S. economic resilience. It was less than three years ago, April 2021, that it hit 4,000. The S&P and NASDAQ have moved higher in 14 of the last 15 weeks, the best streak since 1986. Last week, the S&P 500 was up 1.40%, the Dow Jones Industrial Average was up 0.09%, and the NASDAQ gained 2.34%. The S&P Mid-cap Index gained 1.51% and the Russell 2000 small-cap index was up 2.44%. Meanwhile, robust economic data also sent long-term bond yields higher with the 10-year Treasury yield jumping to 4.16% from 4.02% in the week prior.

Following the blowout January jobs report, last week’s update on the service sector also positively surprised. The ISM (Institute of Supply Management) non-manufacturing index came in better than expected at 53.4, beating expectations of 52.0 and the previous month 50.5. New orders came in at 55, up 2.2 month-over-month. The employment index came back into expansion territory with an increase of 6.7 to 50.5. Remember, numbers in these categories over 50 show expansion. On a more cautious note, the prices paid index jumped to 64 from December’s 57.4 indicating an increase in input costs. This was the biggest month-over-month increase since August of 2012. All in, the report shows a healthy level of activity in the service sector but the rise in input costs could put upward pressure on inflation if it is sustained.

Initial jobless claims lent further credence to strength in the labor market as new claims came in at 218K, slightly below the expected 220K and the previous weeks revised number of 227K. Continuing claims posted 1,871K, which was below the expected 1,878K and the previous week (revised down) of 1,894K. However, layoff announcements were also in the headlines with tech companies such as Amazon, Google and Microsoft getting the most press, but other large companies such as UPS, BlackRock and America Airlines added to the list. Layoffs can have a positive effect on corporate margins or be a sign of a slowing economy that the Fed must factor in when deciding how long before they start cutting rates.

The Fed’s quarterly SLOOS (Senior Loan Officer Opinion Survey) report showed tighter standards and weaker demand for commercial and industrial (C&I) loans in 4Q23. Tighter standards were seen broadly across most areas including residential real estate (RRE), auto, and credit card loans. Going into 2024, responding banks see loan standards remaining the same for C&I and RRE, but tightening standards for commercial real estate (CRE), credit cards and auto loans. Even with tightening standards, demand is expected to increase across all loan categories reflecting more confidence in the Fed’s ability to manage a soft landing.

Earnings season continued with two-thirds of the S&P 500 companies now reported. So far about 81% of those have exceeded analyst expectations, according to LSEG. This strongly outperformed the 67% beat rate in a typical quarter since 1994. Some positive surprises came up such as Disney (DIS) reporting record parks performance and expense control. DIS saw capital return to shareholders with a 50% dividend increase and plans to repurchase $3B in shares this year. The Street was positive that the company was on track to meet or exceed its $7.5B annualized savings target.

Today, CPI (Consumer Price Index) for January came in at 0.3%, higher than the consensus increase of 0.2%. The annual CPI went up to 3.1% instead of going down to the 2.9% that economists were expecting. Persistent higher shelter prices weighed on consumers. This higher-than-expected CPI report may result in the Fed holding off lowering interest rates. Thursday brings in retail sales and manufacturing data. Friday closes the week with PPI (Producer Price Index) information along with housing statistics.