Speaker 1 (00:01):
Welcome to the Key Wealth Matters weekly podcast where we casually ramble on about important topics including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to unlock the mysteries of the markets and investing. Today is Friday, January 12th, 2024. I'm Brian Peter Angelo, and welcome to the podcast. As you may have noticed, we've been on break for a few weeks to celebrate the December holidays in the turn of the year, so we'd like to wish everyone a happy New Year as this is our first podcast for 2024. Glad to have you with us today. Also, as we head into the three-day weekend, we are reminded of and celebrate the immense difference that Reverend Martin Luther King Jr. Made in our lives and society and hope to draw from his wisdom and approach to resolve our conflicts going forward with me today, I would like to introduce our panel of investing experts here to share their insights on this week's market activity and more.
(00:58):
George Mateo, chief Investment Officer, Steve Haight, head of equities and Justin Teno, director of Multi-Strategy Research. As a reminder, a lot great content is available on key.com/wealth insights, including updates from our Wealth Institute on many different subjects and especially our key Questions article series addressing a relevant topic for investors each Wednesday. In addition, we posted our 2024 economic and investment outlook on key.com back in December. So if you'd like to see what our outlook is for the year, please take a look. And finally, as we say every week, if you have any questions or need more information, please reach out to your financial advisor. Taking a look at this week's economic and market news, we actually have a special update one. We're going to give you a recap of last week's economic news, which has four updates, and then we'll give you an update on this week's economic news, which basically has three updates.
(01:53):
So with that in mind, last week, first overall purchasing manager's index data showed that there's been a continuing decline or contraction in the manufacturing side of the economy for basically the past 14 consecutive months. However, on the other side, the services economy has shown strength and has basically been in an expansionary environment for the past 12 consecutive months. So we'll look at that again as we see where the economy is headed for 2024. Second, the Federal Reserve's Open Market Committee meeting minutes from the December, 2023 meeting were released and fed officials basically had the consensus that they were done raising interest rates, but the outlook for 2024 was mixed between keeping rates at a restrictive level versus gradual easing. Third, the job's opening report within the Jolts report from the Bureau of Labor Statistics for November changed little at 8.8 million from October, but have been on the decline overall in terms of job opening trends.
(02:52):
And fourth, last Friday, the employment situation came out from the Bureau of Labor Statistics, which gives us two data points in addition to a couple others, but we'll focus on the two that are most commonly known. That is the unemployment rate, and it stayed at 3.7% for December, unchanged for November, again showing some resiliency in the overall jobs market. In addition to that, new non-farm payrolls were 216,000 in December, up from 173,000 in November. Again, showing strength, however, taking it with a grain of salt, both October and November, non-farm payrolls will revise down by a two month total of 71,000.
(03:31):
Turning back to this week's economic news, we've got three items for you. The highlight of the week was the consumer price index report that came out yesterday from the perspective of slightly unfavorable news in that people expect that inflation will continue to decline, but it did not necessarily decline as much in a couple of cases that actually reversed course and went up. With all that in mind, the all items index rose 3.4% for the 12 months ending in December, which was higher than the 3.1% increase for the 12 months ending in November. If you take out food and energy, a little bit more volatile, and we look at the core CPI, it rose 3.9% over the last 12 months, which was slightly lower than the 4% over the past 12 months ending in November. So a little bit of a mixed message is what we've been talking about for some time that this last mile of inflation to get down to the Fed's preferred measure of 2% will likely take some time and we'll have to take that into consideration.
(04:26):
Number two, overall unemployment claims on the initial unemployment claims side stayed very low, so that's a good sign again for the healthiness of the job market. And then finally, also in A SEC rule adoption of the launch of Bitcoin traded exchange traded funds was released this week and some of the ETFs actually began trading with that approval in the open market. So we're going to get just 10 Tao's take on crypto and what that might mean for investors in terms of the overall opportunity in crypto and in Bitcoin ETFs. George, let's start with you and get your thoughts on the overall economic data and how it might shape the Fed's thinking for 2024 George.
Speaker 2 (05:09):
Well, happy new year, Brian. I think it's an interesting start to the year and somewhat of a interesting start because the end of last year was pretty strong in many respects. We had a general melt up in the early months, I'm sorry, early days of December, which kind of got us towards 47 50 or so in the s and p, and rates came down quite a bit. In fact, seriously enough, the overall market, the stock market anyway, has actually come right back to where it was two years ago. So we've had this round trip with respect to worries about inflation, worried about a recession, more worries about a recession, and then the market essentially did a run trip, as I said, between January of 2022 and year end 2023. And then similarly, the overall bond market had a similar round trip moment where yields went up a lot in the first part of 2023, as we all know.
(05:58):
They came back down, as I mentioned, towards the end year and we're right back to where we were this time last year. So we've gotten kind of nowhere fast, if you will. I think the setup now continues to be one of moderating growth and moderating inflation. I think the next couple basis points towards getting closer to the fed's target will around inflation will be hard to get, but we're getting closer. We've made decent progress this week. As you noted, inflation did surprise a little bit on the upside, and I think some of the components probably you can kind of parse through some details to kind find any story you want to. Basically you can find certain things that suggest that inflation is coming down a little bit. You can find evidence that inflation is staying somewhat sticky. And this morning's the report around producer prices, which is kind of an early readthrough towards consumer prices, actually surprised on the upside in the sense that they were lower than expected.
(06:50):
So net, I think that inflation is still coming down. I still think the story this year is going to be focused more mostly on growth, not necessarily inflation, meaning I think the fed's going to be more concerned about employment in the latter half of this year. And for right now, the employment situation is still pretty good. Early indications suggests that the overall labor market is healthy. Consumers therefore probably feel somewhat still emboldened to spend, although this is the time of the year where things probably slow down from the spending perspective net. But I think overall the economy is in decent shape right now with probably some slowdowns still to come. So I think that does kind of jive with our narrative right now that we see the economy slowing but not stalling. And I think the overall markets are probably going to be moving back and forth between the narrative of a slowdown and more of a recession, if you will.
(07:39):
So I think the thing that we want to focus on is being toward risks. There's certainly a lot of risks out there. And one thing that people are certainly focused on is the elections. And next week when we talk next week at this time, we'll be talking probably about what happened in Iowa. I think that'll probably be an interesting thing to react to. But in the near term, more immediately, we of course have elections in Taiwan. And I guess Steve, we were to look for certain cues as to where respect markets can be thinking about elections and concerns about that we could turn our eyes to Asia. So maybe very quickly, Steve, what are you seeing in Asia that we could think about as relates to elections and market sensitivity around elections?
Speaker 3 (08:16):
Thanks, George. So when you look at what's going on in the Asian markets, the thing that really stands out to me is the strength that we've seen in Japan. So Japan was one of the world's best performing markets last year, and most of us that have been in the business for a while, this is really the first time in 30 plus years that the Japanese market has become relevant to global investors. It's been a market that you could just write off and not even pay attention to. And it's broken out to the upside here again to start the year. Now, I highlight this because this weekend we've got one the most important of the series of global elections this year with the election that's going to happen in Taiwan, it happens tomorrow. The outcome is still to be determined obviously. But look, if people were super concerned about Chinese Taiwan situation, you would not see the Japanese market ripping to new 25 plus year highs. It seems to me that investors are kind of seeing through that, and I think the message from the markets at least is much more sanguine than maybe the message you get from geopolitical pundits who talk about and kind of emphasize the Sabre rattling. So it seems to us that Asia is an area in general where we've seen some rotation this year, and in particular, Japan looks good.
Speaker 2 (09:55):
Hey, Steve, in terms of the oil, I'm sorry, the global markets oil kind of caught my attention again this morning. And I know this is a little bit perhaps off script, but if I look at chart of oil, I'm kind of curious to see this going back to September, the price of oil peaked at the end of September, around 90 bucks a barrel. Of course, we had the war breakout in Israel and now we're continuing to see that maybe expand, hopefully not, but maybe it seems like it's widened a little bit and yet the price of oil is still kind of in the low to mid seventies. So what do you make of that?
Speaker 3 (10:28):
Yeah, so I think it comes down to the fact that if you look on a global basis, we remain in a period of energy abundance as opposed to energy scarcity. And this has to do with in large part one of the themes that you touch on most weeks, which is human ingenuity. And I mean that when I say oil isn't just crude oil anymore, oil is anything that can make it into a refinery. And if you look at the US oil production, the numbers seem flat, but if you take a look at natural gas liquids production, we're producing almost 7 million barrels a day of oil equivalents there. And all of that is making it in the US refineries. So if you put those two things together and keep in mind that NGL number would make the US alone just NGLs the second largest producer in opec. So it's a big deal, and I think we're in a period of time where we've got energy abundance. And quite honestly, if you look at, you want to know one of the reasons why at least I think that the economy has been so resilient in the face of higher rates and all the recession calls that many economists were making over the last year, you have to look no further than the fact that we're dealing with a period of energy abundance,
Speaker 2 (11:53):
Energy abundance and energy independence. I mean, that's really big setup we've been talking about too with respect to why this might not be the seventies show that we talked about before where 73 and 74, of course there was a big oil embargo and that really hit our economy very hard. We were much more dependent upon foreign energy as well, I think. So I guess one last question for you, Steve. We've got earnings starting to trickle out a little bit. What are your thoughts about earnings for the rest of the quarter that's going to be upon us pretty soon?
Speaker 3 (12:20):
Yeah, look, I think if we think about where we've been the first week of the year, it's been a choppy start to the year. Make no mistake about it, we kind of had to pay the piper for the tremendous performance that we had in November and December, and investors started out the year really debating what the shape of the Fed's potential easing cycle is going to look like in 2024. And we also had at the same time a number of sell side shops taking a more cautious approach to some of the mega cap tech earnings for Apple in particular, but across the board generally. And then over the last week or so, we've really seen market tenor switch. It's almost like somebody flipped a switch and we're back to hearing AI buzz dovish fed. And if you take a look at flow of funds data, it's also really strong.
(13:20):
So we're back kind of to the environment where we've had this fairly positive narrative for the last month and a half and it's started to reassert itself this week. And that's why we see the market within spitting distance of all time highs is we head into earning season. Now, I'll tell you, I think that the numbers should be okay as we go through this, but as much as we may want to focus on the micro, I really think this is really going to come down to what and how soon and how quickly the Fed decides to start cutting and what the market's perception is of that. I mean, right now, if you look at what the market thinks, it thinks that there's going to be cuts in the first half of this year. The Fed is trying to push back on that. If you remember last year, really the tension last year was the market was pricing 25 basis points of cuts into the 2023 market, and they ended up with a hundred basis points of hikes relative. So the market doesn't always get this right is my point. And that can add to some chop. So I don't necessarily think that we've got a straight line up from here, but if I think about how the market sets up for at least the first half of 2024, the positives probably outweigh the negatives and we should see things resolve themselves to the upside irrespective of whatever happens with corporate earnings numbers.
Speaker 2 (14:53):
Yeah, I think the Fed probably wants to try and take some of their hikes back a little bit. So I think that the bigger question for me is not so much, how many cuts will it be? Will it be four, will be seven will be two. I think the market probably got a little ahead of itself when they started suggesting that or the market started suggesting they might be cutting seven or eight times. I think one point got that high.
Speaker 3 (15:12):
Completely agree with you. Yeah, George, I've been telling investors and clients that I've been having conversations with to start the year. Look, the biggest risk that we've got on the table here is that the Fed actually cuts too much too soon and it leads to a resurgence of inflation in the second half of the year. Because if that happens, then all betts are off on equity market upside because the move that we saw in equity markets at the end of the year was really triggered by the collapse of the long end of the yield curve. If we get a reversal of that and the yield curve starts to, or the long end of the yield curve starts to work its way higher back up above 5%, stuff like this, I think the equity markets are going to be in for a tough row to hoe. So I think that the message needs to be sent clear to the market from the Fed. I think they're trying to do that. It seems like the probability of a March cut has come down. So I think the message is getting there, but there's probably more work to do.
Speaker 2 (16:19):
Agree more.
Speaker 1 (16:21):
Great points on the Fed, both George and Steve. Thanks for sharing that. And as a last topic, we've got some interesting news from the SEC this week, and so we'd like to give our listeners a taste of what we think in terms of Justin, how about an update on what's going on with crypto and with Bitcoin this week?
Speaker 4 (16:37):
Thank you, Brian. Yeah, it's been a bit of a circus around this story, but on the 10th of January, the SEC approved the listing and trading of 11 spot Bitcoin ETFs. This has been more than a decade in the making. The SEC has been rejecting spot Bitcoin ETFs over that time, and they've done so more than 20 times. So this is a bit of a change, a bit of a change from the SEC. They have always been concerned about investor protection. That's their mandate given the volatility of Bitcoin, whether the Bitcoin markets were, let's say, mature enough to be represented in an exchange traded product and whether the crypto exchanges where the prices are sourced for valuing these assets, whether those could be manipulated or not. And we've seen a number of high profile manipulations and frauds around that space. Importantly, the SEC is not supposed to get involved in the merit of the underlying investment. And the US Appeals Court last year reminded them about that and said that they really didn't have a legitimate mechanism to be blocking these approvals, and they were being a little bit arbitrary in their treatment of Bitcoin. So the commission really had no choice but to begrudgingly approve them. And though that's what they did, and they made it very clear. And in doing so, that in no way did they endorse investing in Bitcoin itself. So a bit of begrudgingly approval nudged on by the US Appeals Court.
Speaker 2 (18:22):
Well, speaking of rouse Justin, I think we'll probably close by the remind people that again, this is an election year and sometimes people refer to that as a circus too. But I think it's fair to say that people's emotions will probably be elevated a little bit as we start thinking about election. Of course, next week, as we mentioned, we'll go through the Iowa caucus and that'll probably remind people again that this is a long process that we're about to embark upon. But I also would note again that if you look back over time since 1936, the overall annualized return for the stock market under the Democratic administration was about 11% under Republican administrations, it was just under that about 10 and half percent. So not to say that politics don't matter too much, but they really don't. In other words, politics are be reacting to the markets rather than the market's reacting to politics. So I think we have to remind ourselves that it's important to keep our heads on straight, stay disciplined and stay focused. And this week in particular, stay warm.
Speaker 1 (19:18):
Well, thanks for the conversation today, George, Steven, Justin, we appreciate your insights and thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results, and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information, and we'll catch up with you next week to see how the world and the markets have changed and provide those keys to help you achieve your financial success.
Speaker 5 (19:51):
The Key Wealth Matters podcast is produced by the Key Wealth Institute. The Key Wealth Institute is comprised of financial professionals representing key entities including key private bank, key bank institutional advisors, key private client, and key investment services. Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice. This material is presented for informational purposes only and should not be construed as individual tax or financial advice. Bank and trust products are provided by KeyBank National Association, a member of FDIC, an equal housing lender, key Private Bank, and KeyBank. Institutional advisors are part of KeyBank investment products. Brokerage and investment advisory services are offered through Key Investment Services, LLC or I, a member of finra, SIPC, and SEC Registered Investment Advisor. Insurance products are offered through Key Corp Insurance Agency, USA Incorporated, or KIA Kiss and KIA are affiliated with KeyBank. Investments in insurance products are not FDIC insured not being guaranteed may lose value, not a deposit, not insured by any federal or state government agency. KeyBank and its affiliates do not provide tax or legal advice. Individuals should consult their personal tax advisor before making any tax related investment decision. This content is copyright by Key Corp 2024.