Market Reaction: Analyzing the Surge in Service Sector Growth | Episode 099 | 02-06-2024

Megan Horneman, Chief Investment Officer at Verdence Capital Advisors, brings you the latest insights into the surge in service sector growth in today's episode. Megan discusses the recently unveiled data on the service sector, a pivotal aspect of American consumer spending. This report, surpassing expectations, reflects a substantial upswing, particularly in imports and the attention-grabbing prices paid component. The surge in this service number, the highest in monthly growth since August 2012, has caught the eye of the Federal Reserve, raising concerns about inflationary pressures. As a result, equity markets are responding with a dip, and the outlook hints at a reconsideration of the timeline for future rate hikes. If you have questions or comments please reach out to podcast at Verdence dot com.

Watch today's episode here:

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today, on Monday February 5th, with our regular segment of Markets with Megan. We're going to talk about the data we got this morning, which was on the service sector of the economy. If you remember, last week we got the monthly indicator on the manufacturing side of the company, I mean of the economy. This week, today, we got the service side of the economy and when it comes to where we spend the majority of our money as American consumers, about 60 to 70 percent of what we spend our money on is actually on the service sector. So this report does tend to get attention from the markets and it is today. It did come in much better than expected. After being on that brink of the level between expansion and contraction last month, it did jump up to the highest level we've seen in about a year. Every component within this index this month jumped up, with the exception of inventory changes. The biggest moves higher were in imports, which saw a pretty big jump, and the one that's getting the most attention in the markets today, and the reason why we're seeing some of the market reaction is on the prices paid component.

We've often talked about the three areas of sticky inflation. The Fed watches, so that's housing, services and wages. Last week we got wage pressures when average hourly earnings jumped up and today this service number, which saw the highest jump on a monthly basis since August of 2012,. This is going to get attention of the Federal Reserve and we will continue to look if this is filtering into any other inflation indicators. What we're seeing in the market today is equity markets are lower in response to the fact that now the Fed we knew March was not on the cards for the Fed, but we're now looking at rate hikes second half of next year. If we continue to see numbers like this. Bond yields have risen as well, so we've seen a pretty big move up in bond yields, both in the short term and long term, and that's another thing that's impacting the market today. That's all we have today. If you have any questions or comments, please feel free to reach out to podcast at Verdence and we'll be back this week with a bunch more economic data. Thank you.