Weekly Market Recap: AI Buzz Boosts Wall Street, Inflation Dips, Cracks Emerge in Global Outlook

Market Overview:

Wall Street finished the week largely basking in optimism, with the S&P 500 gaining over 1%. Growth and communication services sectors strutted their stuff, fueled by the buzz around artificial intelligence and its potential to revolutionize industries. Tech earnings reports further stoked the fire, revealing impressive financial performances that defied economic anxieties. Energy joined the party, bolstered by a resurgence in prices. However, consumer discretionary stocks took a hit after Tesla's underwhelming results dented investor confidence. Despite the occasional hiccup, the mood remained upbeat, indicating a market hungry for good news.

Economic Roundup:

The Federal Reserve likely breathed a sigh of relief this week, as inflation data revealed a steady decline towards their target range. Core inflation dipped to 2.9%, offering hope that their monetary tightening measures are starting to bear fruit. US GDP data came in at 3.3% for Q4, well above consensus of 2% growth. Personal income and spending figures also painted a positive picture, with robust spending contributing to a healthy economic ecosystem. However, cracks in the facade are starting to appear. Eurozone business activity continues to sag under the weight of waning demand and escalating price pressures. China's ongoing struggles with COVID-19 and its real estate crisis cast a shadow over global economic prospects. Closer to home, the U.S. labor market showed signs of softening, with both initial and continuing claims ticking upwards. While the immediate picture might be rosy, the Fed will need to navigate these emerging headwinds carefully to ensure a smooth landing for the economy.

The Week Ahead:

Key economic data to watch: FHFA Home Price Index, S&P/Case-Shiller Home Price Index, consumer confidence, JOLTS Job Openings, ECI civilian workers, FOMC Meeting, initial and continuing claims, unit labor costs, productivity, S&P Global Manufacturing, construction spending, ISM Manufacturing, hourly earnings, average workweek, manufacturing payrolls, nonfarm payrolls, private nonfarm payrolls, private nonfarm payrolls, durable orders, factory orders, Michigan sentiment.