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Weekly Update 12/29/2023: Major Indices Rise as Year Ends

  • Initial claims rise
  • Fed futures watch
  • Apple Wath controversy continues

In a light week for economic data, traders focused on the initial unemployment claims data from the Labor Department. In the week ended December 23, first-time claims rose 12,000 to 218,000. The four-week moving average, which smooths out the week-to-week volatility, was little changed at 212,000. Though the 218,000 figure was above the 210,000 consensus, it matched the lowest since late October and marked another sign of strength in the labor market. Yet continuing claims, which track people who are continuing to receive unemployment benefits, rose to 1.88 million in the week ended December 16. So, while the four-week moving average of initial claims was similar to a year ago, the four-week moving average of continuing claims is up 17% from a year earlier. Next week, the government will release the monthly payroll report which is forecasted to be a still-healthy 170,000 in a survey of economists taken by Bloomberg.

If next Friday’s nonfarm payroll results are not far from the consensus that would be further proof that a soft-landing scenario is taking place. So far, inflation has edged lower and closer to the Fed’s preferred 2% annual target, while the job market has proven durable. Taming inflation while dodging a surge in unwanted unemployment would be welcome news to the Fed…and the markets. The trend higher in continuing claims, however, bears close watching because every recession starts the same way—things look good until they don’t. The divergence between the initial and continuing claims numbers can also be muddled by the holidays where seasonal hiring and weather-related issues can significantly influence the data. The Bloomberg Economics team is predicting an unemployment rate of 4.5% in the second quarter of 2024 versus the 3.9% in November. They believe it will peak closer to 5% by the end of 2024 which would signal a mild recession by historical standards. We will continue to monitor the data as it is released and report our analysis for your benefit.

The futures market continues to believe that the Federal Reserve will begin to reverse course and lower interest rates next year. By the middle of next year, traders are betting that the Fed funds rate will be closer to 4.5% compared to the 5.5% upper range it currently stands at. By year-end, traders believe the Fed will be so aggressive that the rate will drop to under 4%. Economic reality may work against this possibility because the Fed will have no need to reduce rates if unemployment does not spike and the nation does not go into a sharp recession. The Federal Open Market Committee is scheduled to announce its decisions beginning on January 31 next year followed by a meeting on March 20 which will be accompanied by its usual quarterly update of the summary of economic projections. In all, the usual eight meetings are planned which will be followed by a press conference with Fed Chairman Jerome Powell whose term as chairman ends on May 15, 2026.

Corporate news, as expected for the last week of the year, was light. The only notable SGK Core stock in the news was Apple Inc. (AAPL) which continues to battle an injunction against the sale of its Apple Watch Series 9 and Ultra 2 imposed by the U.S. International Trade Commission (ITC). An appellate court in Washington has issued an interim stay of the ITC’s decision on Wednesday which allowed watches back on retail shelves that day and online sales to restart yesterday by 3pm Eastern time. The company had stopped online sales on December 21 and in retails stores on Christmas Eve. The appellate court gave the ITC until January 10 to respond to Apple’s request for a longer stay during the company’s full appeal. While the court issues halted Apple’s participation in this year’s Santa Claus rally, investors cannot be too glum with the shares still up nearly 50% this year.

With the Dow Jones Industrial Average hitting new highs this week (and seven in December already), and the S&P 500 very close to its own all-time record, the year for most investors will be remembered fondly especially after the declines suffered by the major averages in 2022. The Nasdaq Composite is up strong this year but remains 6% below its record close emphasizing how volatility is a two-edged sword given how badly the tech-led index was crushed just last year. We will recap the year’s major economic and market events in our quarterly commentary which should be distributed next month. Enjoy the remainder of the holiday season, and we look forward to serving you in 2024. Cheers!

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