There are no signs of a slowdown in the U.S. economy. The preliminary reading of GDP demonstrated an increase of 3.3 percent in Q4 in the U.S. Job market data suggested that the situation is excellent – it was expected that 180,000 jobs would be created, however, there were twice as many (353,000). The published manufacturing indices were also much better than anticipated.
At the end of January, the most anticipated event was the exciting turn of the months. On January 30, AMD, Alphabet (Google), and Microsoft published their quarterly reports. On February 1, the FOMC meeting ended and Jerome Powell, the chairman of the Federal Reserve, held a press conference. The next day, Apple, Amazon, and Meta (Facebook) published their quarterly reports. On Friday, February 2, the U.S. published its monthly labor market report, also known as “the mother of all reports.”
Let’s start with the Fed chairman. As expected, the FOMC did not change the interest rates. It was expected that Powell would take a slightly more “hawkish” tone during his press conference compared to December, but nothing that would scare investors was anticipated. However, Powell surprised the markets by saying it’s unlikely that the FOMC would cut rates in March.
The stock market did not take this well. The decline in indices was further influenced by weak results published by AMD and Alphabet the day before Powell’s conference. Only Microsoft’s results were very good. On the day after Powell’s conference, Amazon and Meta impressed with their results and forecasts. This erased Powell’s warning in the minds of the players and the S&P500 started to rise, setting a new all-time record.
On Sunday, February 4, during the “60 Minutes” program on CBS, Powell reiterated American would have to wait longer for a rate cut. This hawkish statement confirmed what he said after the FOMC meeting. So, it’s not surprising only the bond and currency markets reacted.
It’s not surprising that the stock market isn’t worried, as there are no signs of a slowdown in the U.S. economy. Therefore, investors are sticking to the “Goldilocks economy” scenario – strong economic growth with moderate inflation. As for the economy, macro data seem to confirm this thesis.
The preliminary reading of GDP showed it grew by 3.3% in the U.S. in Q4 (with a 2% increase expected). The job market data were excellent – 180,000 jobs were expected to be created but the actual figure was twice that (353,000). The published manufacturing indices were also much better than anticipated.
For example, the services sector index (which constitutes more than 90% of the economy) rose from 50.5 to 53.4 (moving beyond 50 shows that the sector is expanding). The indices warned of high increases in the sub-indices of the costs. This may mean that those observers of the economy who argue that it’s not facing a “soft landing” scenario (without high inflation and without recession) but a “no landing” scenario (economic growth but with continuously high inflation) could be right.
In early February, there were only three perceived threats to the U.S., and therefore the global bull market. Firstly, there was concern about the very narrow market – only a few large companies were responsible for the index growth. Secondly, the mood of investors was too positive. And thirdly, there was renewed anxiety about the state of regional banks.
The massive markdown of New York Community Bancorp’s stocks, which had acquired the failed Signature Bank due to losses on loans in the rapidly devaluing commercial property sector, might be seen as a ‘canary in the coal mine’. It might (but not necessarily) warn of a ‘black swan’ that might mean the recent upsurge in indices was the bull market’s swan song before the anticipated correction in the stock market due in the first quarter.
Piotr Kuczyński, Member of the Polish Economists Association, DI Xelion
