EZBites~week ending February 2, 2024

LAST WEEK:

DOW:+1.4% (YTD:+2.6%)

NASDAQ:+1.1% (YTD:4.1%)

S&P:+1.4% (YTD:+4.0%)

It was a busy week of news and earnings results.? By the end of the week, the S&P 500 and DJIA both closed at fresh all-time highs and the major indices all logged gains, except the Russell 2000.

The underperformance of the Small-cap index was related to weakness in regional banks after New York Community Bank (NYCB) reported a large jump in its Q4 provision for credit losses against Q3, and a dividend cut. This report brought to mind the regional bank fallout from last year, and as a result, the SPDR S&P Regional Banking ETF (KRE) dropped 7.2% this week.

Meanwhile, Mega-cap stocks as a group continued to outperform the broader market following earnings results from some influential names. Alphabet (GOOG) and Microsoft (MSFT) reported results on Tuesday while Apple (AAPL), Amazon (AMZN), and Meta Platforms (META) all reported Thursday.? GOOG and AAPL fell 6.7% and 3.4% respectively, while MSFT (+1.8%), AMZ (+8.0%) and META (+20.5%) all rose.

These names combined make up nearly a quarter of the S&P 500. The Vanguard Mega Cap Growth ETF (MGK) climbed 2.1% this week.

Dow component Boeing (BA) was another notable name that reported earnings this week, logged a 1.9% gain since last Friday. BA is still down nearly 20% this year, however, following the prior grounding of 737 Max 9 planes.

In addition to earnings from influential names, this week's price action was driven by a recalibration of rate cut expectations following more strong economic data and the FOMC meeting on Wednesday. The committee voted unanimously to leave the target range for the fed funds rate unchanged at 5.25-5.50%. This move was expected, but the market was hoping for a dovish shift in rhetoric around the Fed's rate cut path. Instead, the FOMC stated that it will continue to be cautious with rate cuts, stating "The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent."

Fed Chair Powell reiterated this view in his subsequent press conference, and just about everything sold off on Wednesday in response.

The FOMC decision was followed by a much stronger than expected January Employment Situation Report on Friday, which featured a big upside surprise in payroll growth and a larger than expected increase in average hourly earnings.

As a result, investors reduced their rate-cut expectations: the Fed Funds futures market lowered the probability of a 25-basis points rate cut in March to 20.5% (from 47.6% one week ago) while the probability of a 25-basis points rate cut at the May FOMC meeting has been reduced to 74% (from 93.8% yesterday, according to the CME FedWatch Tool).

The 2-yr note yield declined two basis points to 4.38% and the 10-yr note yield fell 13 basis points to 4.03%

March EZTracker Newsletters come out Sunday, February 25, 2024