by Jade Thomason
Equity and Fixed Income Trader
The final data points of 2023 are trickling in, and investors are using this information to inform their opinions on what is expected in 2024. Starting this month, we have begun to share our 2024 Investment Outlook with clients and professional partners – we look forward to having the opportunity to be together and celebrate what’s to come.
The theme of our 2024 Investment Outlook is that we will have “no hard landing.” What does this mean exactly? When the Federal Reserve rapidly raises rates, it may cause a recession, known as a “hard landing.” However, if the Federal Reserve can raise interest rates just enough to slow the economy and reduce inflation without causing a recession, it will have achieved what is known as a soft landing. We believe that the strength of the consumer is one of the reasons a “hard landing” is unlikely, which is reinforced by the latest retail sales data from December.
Americans are continuing to spend. U.S. retail sales rose more than expected in December - a seasonally adjusted 0.6% from a month earlier, and this was a larger-than-expected gain after a healthy increase in November. Sales at department stores jumped 3% in December, the most of any category. With the higher interest rate environment and tighter credit conditions, many expected we would see a shift in spending habits. We can reconcile the positive retail sales news with the fact that the state of the labor market heavily influences spending. The labor market continues to be resilient and offers a positive outlook for 2024.
The number of Americans filing new claims for unemployment benefits fell last week to the lowest level since September 2022, suggesting job growth likely remained solid in January. For the week ending January 13th, jobless claims decreased by 16,000 to 187,000, as reported by the Labor Department on Thursday. We believe this further refutes a hard landing, as the consumer will continue to spend and prop up the economy as long as they are employed. The Federal Reserve aims to cool the economy and the labor market to bring inflation down to its 2% target. The graph below shows that “cooling” is taking place, as the total job openings have consistently decreased since the peak in early 2023, indicating that, while jobs are still available, fewer openings exist today.
The Federal Reserve has a tough job of decreasing inflation while maintaining a healthy economy. Still, we are staying balanced while walking the tightrope based on what we see from late 2023 and early 2024 data.
Takeaways for the Week:
The resilience of the economy, labor markets and the consumer continue to offer a positive outlook for the future
Earnings season is upon us, and in the coming weeks, we will see most of the S&P 500 companies report for the fourth quarter of 2023. Earnings are slated to increase by 1.3% year-over-year