Week in Review: March 8, 2024

March 11, 2024

Recap & Commentary

Markets ended the week largely unchanged as modest gains recorded prior to Friday were reversed following the stronger-than-expected February jobs report.  Interest rates pulled back over the course of the week, with the 10-year Treasury yield shedding 0.10%, helping the Bloomberg US Aggregate Bond index, the broadest measure of the US bond market, enjoy its best weekly return in nearly two months.

Fed Chair Jay Powell spent two days on Capital Hill providing his semiannual monetary policy report to Congress. Powell’s comments hewed closely to those he made following the Fed’s last FOMC meeting in which he said he expects the Fed to begin cutting rates later this year but first must see further evidence that inflation is moving sustainably towards the Fed’s longer-term 2% target. Powell, other policy makers, and the markets will receive their next tranche of inflation data this upcoming week with the release of February consumer and producer price data. Signs that inflation is cooling would likely support equity markets, while stronger-than-expected data would likely raise further concerns about the timing and extent of Fed rate cuts in 2024.

One recent welcome trend within equity markets has been the increase in “breadth” or the number of companies advancing compared to those declining. For much of 2023, breadth was quite narrow, with S&P 500 returns driven by a small handful of stocks, i.e. “The Magnificent 7.” One interpretation of increased breadth is that current market performance could be more sustainable as it is less reliant on a small number of stocks.

Economic Commentary

Nonfarm payrolls added 275K jobs in February, beating expectations of 200K. However, underlying details of the report were less strong than the headline number. January’s data was revised sharply lower from 353K jobs created to 229K, bringing the net gains including revisions to just 151K in February. The unemployment rate, as measured by a separate household survey, increased to 3.9% after remaining at 3.7% for the prior three months. Wage growth also moderated during the month, increasing just 0.1%, the slowest pace of growth since March 2021.  Demand for jobs, as measured by the JOLTs report, showed job openings fell slightly in January to 8.86M.  Job openings are 16% lower since last year as demand for workers has moderated. The number of workers quitting their jobs fell to 2.1%, the lowest rate since August 2020, indicating less abundant opportunities in the labor market than in prior years. Though the jobs data seemed strong enough to keep recession fears at bay it is unlikely to alter the Fed’s expected timing of rate cuts.

The US Service sector, as measured by ISM data, continued to expand in February, albeit at a slightly slower pace than January. Business activity and new orders both accelerated during the month but were partially offset by a contraction in employment as hiring activity or has cooled in recent months.  The prices index increased for the 81st consecutive month but declined substantially from a reading of 64 in January to 58.6 last month.

Of Note

China announced its 2024 economic growth goal of “around 5%,” unchanged from 2023. Investors are generally skeptical that the goal will be met given the country’s slumping real estate market and flagging consumer demand.

Market Indices   (As of 03/08/2024)

• Consumer Inflation (CPI)
• Producer Inflation (PPI)
• Retail Sales
• Consumer Sentiment
• Industrial Production
• Weekly Jobless Claims