Markets looked very different at the end of the day on February 2, 2024, than they did about a year ago today. Around this time last year, the S&P 500 sat near 4,000; now, it hovers around record highs, almost at 5,000. We are in a tumultuous election year, yet markets seem undeterred, at least if the record highs for both the Dow Jones Industrial Index and the S&P 500 are any indication.
Further, Friday saw Meta take the record for the largest market capitalization increase in history, according to Hannah Miao of The Wall Street Journal. The shares popped over 20% on optimism from a strong report. Beyond that, Amazon also charged forward nearly 8% on strong earnings. Many Americans may lack optimism with regard to the economy at the moment, but markets certainly do not.
The week was not universally filled with green, however. On Wednesday, after leaving rates unchanged, Federal Reserve Chair Jerome Powell indicated that rate cuts would not be rushed into, and the major indices all declined sharply intraday in response. Between Thursday and Friday’s gains, though, markets did more than make up for Wednesday’s loss, with the S&P 500 ending up 1.32% for the five trading day period ending Friday.
Beyond individual major gainers like Amazon and Meta, Friday’s rise can be attributed to the strength of the labor market. The Bureau of Labor Statistics reported the addition of 353,000 jobs in January, along with a strong 3.7% unemployment rate. On the inflationary front, recent data from the Consumer Price Index showed inflation at 3.4%, significantly below recent highs over the past year but still an acceleration from November’s 3.2%.
So far, the rate of inflation is down from the near 9% rate at its recent highs, but if the Fed takes its foot off the brakes with rate cuts, that could change. That concern has certainly been driving the Fed’s decision-making process, which appears premised upon one concept: caution. The CPI inflation calculator published by the Bureau of Labor Statistics indicates that $0.85 in December of 2020 had the same purchasing power as $1.00 three years later. Ultimately, caution to avoid further erosion of purchasing power is not a bad thing, but markets may not respond positively if the next meeting goes similarly. Nevertheless, for the time being, optimism appears to be in the driver’s seat as far as markets are concerned.