The FCMS Investment Committee is pleased to share the latest insights on the current financial market and economic developments.

Market Perspectives

Here are the top things from our FCMS Investment Committee on current financial markets and economic developments:

1. 1. Market Momentum Pushes S&P 500 Over the 5k Mark

      The S&P 500 closed above the 5,000 mark on Friday after last week’s gains augmented the strong start to 2024. With domestic large-caps on such a well- defined up-trend off their October lows (the S&P 500 is up 14 of the last 15 weeks), market momentum took over in a week devoid of catalysts.

   2. Interest Rates Rise, Yield Curve Steepens, but Equities Remain Resilient

      The move higher in interest rates and the steeper yield curve have not weighed down equities. Economic resilience that has driven the 10-year U.S. Treasury bond yield 30 basis points higher this year is largely due to a pushback in the expected timing of the Fed cutting rates. That does not mean that rates don’t matter at all; higher interest rates are likely a big driver of the poor stock market breadth with the underperformance of small caps this year and the outperformance of higher quality, larger cap names with strong secular earnings trends. The rise in interest rates has supported the dollar, a headwind to international equities (especially emerging markets). However, last week, emerging markets benefited from further policy support by Chinese authorities ahead of their Lunar New Year holiday

   3. Market Sentiment May Change with Upcoming CPI, Retail Sales Reports, and Nvidia Earnings

      Potential catalysts for a change in market sentiment from recent trends include this week’s CPI and retail sales reports and earnings from tech giant Nvidia on February 21. Other worries that are being overshadowed by the S&P 500’s new daily records, like weakness in some regional banks and a potential escalation of tensions in the Middle East, could also return to the forefront for investors. Lastly, investors are closely following the news flow in China for signs of a durable change in policy that could turn the tide for one of the worst-performing major markets over the past two years.

What Happened Last Week?

Here is a recap of the top things that happened last week:

• A mega-cap-led rally lifted the S&P 500 above 5,000, a new all-time high.
• Interest rates continued to drift higher as the yield curve steepened, supporting higherquality large caps relative to small caps and cyclicals.
• International stocks continued to underperform, weighed down by dollar strength, although Chinese equities stood out on policy-driven outperformance.

What We’re Watching This Week

Here is a recap of what we’re watching for this week:

• Potential short-term reversion catalysts include January inflation and retail sales data.
• Other catalysts include renewed concerns stemming from regional banks and potential geopolitical developments out of the Middle East.
• Lastly, the Lunar New Year holiday will provide a 1-week pause for any policy developments out of China.

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