Economic & Market Monitor

For the period ending February 16, 2024

Market Review

Disappointing inflation news sent interest rates higher last week. While this took its toll on the bond market, the stock market held up surprisingly well considering its enormous gains in recent months.

  • The S&P 500 slipped 0.3% led by some profit taking in the high-flying technology and communications sectors. Internationally, the developed and emerging markets gained 1.5% and 2.1%, respectively.
  • The yield on 10-year U.S. Treasury notes climbed 0.10% for the week, settling at 4.28% on Friday. The Bloomberg Aggregate and Bloomberg Municipal Bond Indexes slipped 0.6% and 0.1%, respectively.
  • The Bureau of Labor Statistics reported that January’s Consumer Price Index (CPI), including food and energy prices, increased 3.1% on a year-over-year basis. The core CPI, which excludes food and energy prices, increased by 3.9%. Both reports exceeded economists’ expectations by 0.2%. Firm prices in the services sector of the economy generated investor worries that inflation may prove more persistent that previously believed.
  • While inflation surprised to the upside in January, retail sales surprised to the downside most likely due to harsh weather conditions. The Commerce Department reported retail sales slumped 0.8% from December. Nine of 13 sales categories moved lower led by building materials, motor vehicles, and motor vehicle parts.
  • Fourth quarter corporate earnings were surprisingly strong. As of Friday, nearly 80% of S&P 500 companies had reported their results with 80% exceeding Wall Street’s projections. Analysts currently estimate fourth quarter S&P 500 earnings per share increased 9.6% from the prior year. This is up from estimated growth of 4.7% at the start of the reporting period.


The uptick in January’s inflation reports align with significantly stronger than anticipated growth in the U.S. economy over the past year. If employment market conditions remain firm as the year progresses, the Federal Reserve will be in no rush to lower interest rates. The financial markets are adjusting to this with expectations that are now more closely aligned with the Fed’s own forecast which calls for a lowering of the fed funds rate to 4.6% by the end of the year from 5.3% currently. As of Friday, futures contracts were pricing in fed funds at just over 4.4% in December. This is up from 3.75% at the start of the year and 4.2% a week ago.

  • Bond prices could remain under pressure in the near term as market expectations adjust to firmer economic conditions and price levels. The stock market is vulnerable to downward valuation adjustments – particularly in its pricier components such as technology and communication services – but better than anticipated earnings seem likely to provide offsetting support.
  • The market has dialed back expectations for Federal Reserve rate cuts in the near-term following the latest inflation reports. Coming into the year, markets were expecting the Fed would move much more aggressively and anticipated the first rate cut would happen in March. As of Friday, fed fund futures showed nearly a 90% probability that the fed funds will remain unchanged at 5.25% - 5.50% following the March Federal Open Market Committee (FOMC) meeting. The futures market is now pricing in a 61% probability that the first-rate cut will occur at the June FOMC meeting.
Market Insights 2/16/2024 Market Insights 2/16/2024

This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Bank of Hawaii and its affiliates do not provide tax, legal or accounting advice. This material is not intended to provide, and should not be relied on for, tax, legal, or investment advice. You should consult your own tax, legal, accounting or financial professional before engaging in any transaction. Neither the information nor any opinions expressed herein should be construed as a solicitation or a recommendation by Bank of Hawaii or its affiliates to buy or sell any securities, investments, or insurance products. Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved. Past performance is not a guarantee of future results.

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