Weekly Market Brief: February 20, 2024

Stock prices fell last week for just the second time since bottoming last October. The NASDAQ Composite led the way downward, dropping 1.3%, but that growth-heavy index is still the best performer on the year, up 5.1%. The US Dollar index, meanwhile, tacked on its fifth straight week of gains, and interest rates rose to their highest levels since December. Crude oil rose 3%, bringing its year-to-date gain to 10.5%, and Bitcoin has tacked on another 21% in 2024 after doubling in 2023.

Disinflation Discontinued?

Inflation surprised to the upside last week, coming in at 3.1% year-over-year, while analysts expected a deceleration to 2.9%. Core prices were even worse, rising at a 3.9% annual rate. The biggest upside surprise came from shelter, which comprises nearly a third of the Consumer Price Index. On a year-over-year basis, rent of shelter inflation slowed for the 10th consecutive month, but the 3-month annualized change in housing costs reaccelerated to the highest rate since last May.

Stock prices sold off sharply in response to the news, and odds of a May interest rate cut fell from 50% to 30%. But is disinflation really dead? Probably not. The reacceleration in shelter inflation needs to be taken with a grain of salt , because the BLS’s measure of shelter inflation notoriously lags real-world data. The Case-Shiller US National Home Price Index has risen less than 1% over the last year, and Zillow’s Observed Rent Index has actually fallen over the last 3 months.

And excluding shelter, CPI has been below the Fed’s 2% annual inflation target since June.

Relatively Speaking

It may be a new year, but sector leadership to start off 2024 looks awfully familiar. Through the first month and a half, Communication Services has risen 10.1%, and Information Technology has gained 7.5%. The Health Care and Financials sectors are also outperforming the benchmark S&P 500 index year-to-date.

Real Estate and Utilities, the two sectors most negatively impacted by high interest rates given their elevated debt levels, are repeating last year’s disappointing performances. REITS are down 4.3%, and the Utes are down 3.8%.

What's Ahead

Here are the key data releases and events to keep on eye on in the coming days.