Market Quote: S&P 500 Reaches New Heights, U.S. Regional Bank Guidance, U.S. Consumer Resilience
Author: The editor's desk
January 24, 2024
A mid-week analysis of what’s happening in global financial markets from the perspective of AGF’s investment management team.
The S&P 500 is trading at new all-time highs after exceeding late last week its previous high-water mark set in early January of 2022. Yet, crucially, 77% of S&P 500 companies still trade below their January 2022 levels as the trend towards substantial S&P gains being concentrated in companies associated with generative artificial intelligence (AI) continues.
The world’s leading semiconductor manufacturer, responsible for more than 90% of advanced chip production, issued a robust 2024 outlook, signaling a shift in semiconductor end-markets. Accelerated AI investment in 2024 could yield productivity improvements in 2025 and beyond, potentially following Amara’s Law, which suggests the market tends to overestimate short-term technology potential but underestimates long-term impact.
Some U.S. regional bank stocks traded lower following the release this past week of fourth quarter earnings and guidance that suggests the group may experience more muted loan and deposit growth over the next two quarters.
This is especially true if the U.S. economy struggles before picking up towards the end of the year. Yet part of this guidance is also based on rate cut assumptions for 2024. In fact, most of the “regionals” have adopted current market estimates that are calling for six rate cuts over the course of the next year.
But what if the U.S. Federal Reserve ends up cutting less than that (and more in line with its own projections of three cuts)? In that case, the revenue picture for U.S. regional banks could end up improving materially, all other things being equal.
The recent release of the December retail sales in the U.S. exceeded market expectations. That event, coupled with a resilient University of Michigan Survey, revived the upward pressure on U.S. Treasury rates we have observed since the beginning of 2024.
This could change rapidly with all eyes now on the latest consumer spending numbers scheduled for release on Friday morning. This will be one of the last meaningful data points the market is expecting before the U.S. Federal Reserve’s meeting planned for next Wednesday and could therefore have a huge impact on current trends.
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