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March 2024 Market Commentary

March 22, 2024
  • S&P 500 sets new all-time record high.
  • January inflation data surprised to the upside reigniting concerns about monetary policy.
  • Market expectations for Fed rate cuts in 2024 declined from six to three over the course of the month.
  • Returns: S&P 500 5.2%. Bloomberg US Aggregate Bond index -1.4%.

Markets rallied further in February, propelled by first quarter earnings reports, economic data, and the Fed. The S&P 500 set eight new record highs during the month while surpassing 5,000 for the first time. Inflation remained a central focus for investors who entered the month with hopes that the Fed might cut rates as many as six times before year end. Economic data released during the month continued to point to slowing conditions but not a recession.

At his press conference following the Fed’s January FOMC meeting, Chair Powell stated he was pleased with recent inflation data but that he and fellow policy makers wanted to see additional “good” inflation data before considering any rate cuts. Unfortunately, January data released in February showed a reacceleration in inflation as headline consumer prices (CPI) rose 0.3% during the month, faster than the expected 0.2% increase. Compared to a year earlier, headline CPI slowed from 3.4% to 3.1%, returning to its November level. Super core inflation, which excludes food, energy, and housing jumped 0.4% to 4.3%, from a year ago, its highest level since May 2023. Super core inflation, according to the Kansas City Fed, is more sensitive to nominal wage increases than other measures.

After peaking at 9.1% in June 2022, annual headline CPI declined for 12 consecutive months, falling to 3.0% in June 2023. Since then, however, inflation has been range bound between 3.1% and 3.7% indicating that a) the easy gains in the fight against inflation have been realized, and b) further declines will likely be slower to occur and the ultimate path back to the Fed’s 2% target will be protracted. With the reacceleration in monthly inflation, market expectations for 2024 rate cuts steadily moved from six at the start of the month, to three by the end of the month, mirroring the Fed’s most recent forecast. In addition, expectations regarding the timing of the first rate cut shifted from May to June.

Economic data released during the month suggested further slowing of activity. Data provided by industry group Institute for Supply Management (ISM) showed manufacturing activity contracted for the 16th consecutive month while service sector activity continued to expand, albeit at a modest pace. Employment in both sectors contracted in the same month for the second time in the past three months and third time overall since the end of 2020. That slowdown wasn’t reflected in the January jobs report which showed the economy added 353K jobs, the strongest pace of growth in a year. However, the January data was subsequently revised down to a still strong 229K. Unemployment remained unchanged at 3.7% for a third consecutive month. Job openings also remained unchanged at 8.9M, or approximately 1.4 jobs/unemployed individual, suggesting the demand for labor remains elevated though down from its peak of ~2.0 jobs/unemployed individual in early 2022.

Equity markets enjoyed strong returns in February, aided in part by comments from Fed Chair Jay Powell at the start of the month that he and other Fed officials were pleased with recent inflation data. While subsequent inflation data raised questions about how many rate cuts the Fed will pursue in 2024, and when exactly they will start, the data did not change the broader narrative that the Fed still intends to cut rates this year. That resulted in positive equity market returns which saw large caps (S&P 500) gain 5.2%, while small caps (Russell 2000) added 5.5%. International market returns were also positive with developed markets (MSCI EAFE) rising 1.7%, while emerging markets (MSCI EM) gained 4.6%.

With markets at new all-time highs and concerns about economic strength persisting, questions/concerns about the sustainability of the market’s current rally have invariably arisen. From a historical perspective, the longevity of the market’s current rally is well within the historical norm. According to Ned Davis Research, since 1930 the average bull market has lasted ~700 days. At the end of February, the current bull market which began in October 2022 was ~350 days old. While that does not guarantee continued positive returns moving forward, it does suggest that bull markets often persist in the face of questions/concerns that surface when markets reach new record highs.

One positive market development in February was increased market “breadth,” a measure of the number of stocks participating in a rally. Narrow breadth results when a relatively small number of stocks contribute to the market’s gains. Such was the case in 2023 when the “Magnificent 7” or “Mag 7” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) accounted for 70% of the S&P 500’s gains. The concern with narrow market breadth is that if the momentum behind the relatively small number of stocks suddenly stalls, the markets can be susceptible to a pullback.

When breadth increases, it indicates that a greater number of stocks are responsible for the market’s upward movements, potentially making the rally more resilient. In 2024, through the first two months of the year, 46% of stocks within the S&P 500 have outperformed the index, whereas in 2023, only 31% of the stocks within the S&P 500 outperformed the index.

Unlike equity markets, fixed income market returns were negative in February, with the Bloomberg US Aggregate Bond index, the broadest measure of the US bond market, falling 1.4%. Rising interest rates, driven by the higher-than-expected January inflation data and shifting expectations regarding the timing of Fed rate cuts, were the primary culprits. Yields on the 10-Year Treasury climbed nearly 0.50%, reaching 4.35% intra-month, their highest level since November, before ending at 4.18%. The 2-Year Treasury yield rose just over 0.50%, before a late month rally.

An initial jump in yields came early in the month on surprisingly strong ISM Services data, indicating that portion of the economy was still running hot. A second surge in yields came mid-month, with the release of CPI inflation data, whose strength caught markets by surprise. In addition, a five-week low in jobless claims, and business surveys showing continued economic expansion, led to yields reaching new 2024 highs later in the month. Some positive signs for inflation in the Euro-area caused a small rally through month-end, resulting in a slight easing of yields.

Minutes from the Fed’s January FOMC meeting combined with the January inflation data helped reset market expectations regarding the number and timing of Fed rate cuts in 2024. The minutes reinforced comments previously made by Fed Chair Jay Powell and other committee members that FOMC participants generally “did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2%.” In addition, “most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2%.”

Municipal bonds outperformed Treasurys during the month, seeing only minor yield increases, helped by an uptick in demand since the start of the year. If the back-up in Treasury yields continues, municipal yields will likely follow, but for the time-being municipal performance has held strong waiting to see if the Treasury selling is a sustainable trend.


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Information and research contained herein do not represent a recommendation of investment advice to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment, and it does not constitute an offer or solicitation to buy or sell any securities. It is not possible to invest directly in an index. There is no assurance that investment products based on the index will accurately track index performance or provide positive investment returns. Past performance is not a guarantee of future results. These materials have been prepared solely for informational purposes based upon information generally available to the public from sources believed to be reliable. The views and opinions expressed in this publication are subject to change, at any time, without advance notice or warning.

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