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Stocks Hit New Highs
Major U.S. stock indexes added to the previous week’s gains, and a rally on Friday pushed the S&P 500 to a level that broke its previous all-time closing high set on January 3, 2022. The Dow topped a record that it had set 17 days earlier. The latest gains marked the 11th positive week out of the past 12.
A survey of U.S. consumers recorded a strong rebound in sentiment for the second month in a row, resulting in the biggest two-month gain since 1991. The University of Michigan's January sentiment reading rose to 78.8, up from 69.7 in December and 61.3 in November. Consumers reported greater optimism that inflation will continue to ease.
Analysts’ slightly negative expectations for earnings season were scaled back as a second week’s batch of quarterly results came in. As of Friday, fourth-quarter net income was expected to decline 1.7% compared with the year-ago quarter, based on S&P 500 companies that have already reported plus projections for those that haven’t yet reported. In the previous week, analysts had forecast a 0.1% decline, according to FactSet.
A sharp decline in weekly unemployment claims was among the factors that shifted the outlook for interest-rate cuts and drove the yield of the 10-year U.S. Treasury bond to its highest level in more than five weeks. On Friday, the yield closed around 4.14%—up from a recent low of 3.79% on December 27.
High interest rates weighed on the U.S. residential real estate market in 2023, as the National Association of Realtors on Friday reported that existing home sales fell to the lowest full-year level since 1995. Last year’s total of 4.09 million home sales was down 19% from 2022’s 5.03 million.
Small-cap stocks and large-cap value stocks underperformed most other segments of the U.S. stock market in 2023, and they continued to lag in the opening weeks of 2024. A small-cap benchmark was down year to date about 4% at Friday’s close, while a large-cap value benchmark was down nearly 1%.
The world’s second-largest economy expanded at an annual rate of 5.2% in the fourth quarter, slightly below most economists’ expectations but an improvement from the third quarter’s 4.9% figure. For full-year 2023, China’s growth rate was 5.2% compared with a 3.0% increase in 2022.
Thursday’s scheduled release of the U.S. government’s initial estimate of fourth-quarter GDP is expected to show that the economy remained on a solid growth track but slowed relative to the third quarter when GDP grew at a strong 4.9% annual rate. A running estimate released on Friday by U.S. Federal Reserve economists projected a fourth-quarter growth rate of 2.4%.
Source: John Hancock Investment Management
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