WEEKLY MARKET UPDATE 1/12/2024

After a sluggish start to the year, the S&P 500 rose over 1.7% on the week as investors shrugged off Thursday’s hotter-than-expected consumer price index (CPI), mixed earnings results on Friday, and rising geopolitical tensions.  Next week will be shortened due to the MLK market holiday, but investors will be watching retail sales, consumer sentiment, and existing housing sales.

SUPPLY CHAINS & INFLATION

December’s CPI report exceeded expectations, but the market reaction was fairly muted as investors continue to believe inflation is headed lower.  Below we have included a chart from Ned Davis Research that plots CPI against global supply chain pressures, and it is easy to see why the recent CPI report was largely ignored.  The trajectory of inflation has closely tracked supply chain pressures and clearly the supply chain chaos that we saw in the aftermath of the pandemic and economic lockdowns has receded significantly. 

However, the Red Sea is an area we are watching closely as world container freight rates have surged, as Yemen’s Houthi rebels have threatened shipping lanes and the recent US and UK strikes on Houthi targets have added to tensions.  Ultimately, we believe the easing in supply chain pressures more than offsets inflationary pressures from disruptions in the Red Sea, but geopolitics will be watched closely over the weekend.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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