Weekly Market Update | Week 11, 2024


Key Takeaways

  • S&P 500 posted the best weekly performance this year.
  • March FOMC meeting reiterated projections for three rate cuts this year.

US equities were higher this week as the S&P 500 posted the best weekly performance this year, underpinned by a big Treasury rally and dovish takeaways from this week’s March FOMC meeting. Momentum was a big outperformer again this week, outpacing value by nearly 200 bp. 

  • Small caps were a slight underperformer though still solidly higher for the week. 
  • Treasuries were firmer with the curve steepening, with the policy-sensitive 2Y down ~15bp for the week, back around 2.60%. 
  • Gold was fractionally lower. 
  • Bitcoin futures were down ~8%.
  • WTI crude was down 0.5%.

Last week’s upside was primarily driven by the March FOMC meeting that included the dot plot holding projections for three rate cuts this year and Chair Powell downplaying recent hotter inflation prints. Futures continue to price in the first rate cut for June, though some economists see a growing risk of the Fed pushing up the first cut to May depending on the inflation prints in the coming months.

This week also saw more AI tailwinds following the NVDA +7.4% event and a number of other updates in the space. Other pieces of the bullish narrative include improving breadth amid an improved macro outlook, disinflationary tailwinds from supply-side dynamics (particularly labor market), declining bond volatility, no tail risk triggers following the BoJ hike and YCC exit, and resilient macro takeaways from manufacturing PMI and housing data.

Despite the call for three cuts, there were some hawkish takeaways from the FOMC meeting, including upward revisions to the 2025 and 2026 dots and slight increase in the long-run dot, which could presage an increase to the Fed’s neutral rate forecast. The March flash PMI also showed the fastest increase in input costs in six months and selling prices in 11 months, while the Fed raised its forecast for core PCE for this year.

There was also more scrutiny on the health of the consumer, particularly after LULU -13.3% flagged weaker US consumer behavior with a soft start to Q1 on a slowdown in US traffic and conversions, while NKE -5.8% also guided 1H revenue for a LSD decline. Other pieces of the bearish narrative this week included BoJ rate hike (which some economists see as a predictor of global recession signaling), Big Tech earnings momentum deceleration, and ongoing overhangs around the deficit, Treasury supply concerns, geopolitics, and domestic politics.

The March FOMC meeting ended with no change to the benchmark rate, as expected, and few changes to the policy statement. The SEP dot plot forecast for three cuts this year, and while GDP forecasts were marked up, the core PCE forecast was also raised, suggesting a slower path toward the Fed’s 2% target.

In the post-meeting press conference, Chair Powell also downplayed hotter January and February inflation prints as bumps in the road. Some economists said the Fed may be willing to accept higher inflation for longer in order to hold off a recession, as well as a general view that the Fed wants to cut despite some uncertainty around the path of disinflation. 

Market pricing is fully in line with the Fed, now pricing in ~78 bp of cuts by year-end from the current midpoint, though some economists continue to flag risk of 100 bp of cuts this year.

This week saw some solid economic data included March flash manufacturing PMI, which hit the highest level since Jun-22, though services PMI was a bit weaker than expected. However, the report’s prices paid and prices received indexes were the highest in a year, though some economists noted the indexes remain around pre-pandemic levels and noted most of the upside pressure was driven by energy.

$A busy week of housing data included March NAHB builder confidence beat, which was up for a fourth-straight month and back in expansion territory. February housing starts and building permits also beat,while a big existing home sales beat saw the biggest jump in a year.

Good Friday means we have a four day market week.  The economic calendar includes February new home sales, the Dallas Fed Index; February durable goods, Consumer Confidence, the Richmond Fed Index, and pending home sales on Thursday; and February Core PCE and an appearance by Chair Powell are set for Friday (29-Mar) despite a market holiday.

Fixed Income

Yield Curve

March FOMC Statement   January Minutes   Credit, Liquidity and Balance Sheet    Federal Reserve Dot Plots

Treasury.gov yields    FOMC Policy Normalization Statement     Longer- Run Goals Jan 2024

Foreign Exchange Market

Energy Complex 

The Baker Hughes rig count was down 5 this week. There are 624 oil and gas rigs operating in the US – Down 134 from last year.

Metals Complex 

Employment Picture 

Weekly Unemployment Claims – Released Thursday 3/21/2024 – In the week ending March 16, the advance figure for seasonally adjusted initial claims was 210,000 a decrease of 2,000 from the previous week’s revised level. The 4-week moving average was 211,250 an increase of 2,500 from the previous week’s revised average.

February Jobs Report –  BLS Summary – Released 3/8/2024 –  The US Economyadded 275k nonfarm jobs in February and the Unemployment rate increased 0.2% to 3.9%. Average hourly earnings increased 5 cents to $34.57.  Hiring highlights include +67k Healthcare, +52 Government, and +24k Social Assistance .

  • Average hourly earnings increased 5 cents/0.1% to $34.57.
  • U3 unemployment rate increased 0.2% to 3.9%. U6 unemployment rate increased 0.1% to 7.3%.
  • The labor force participation rate was unchanged at 62.5%.
  • Average work week increased 0.1 to 34.3 hours.

Job Openings & Labor Turnover Survey JOLTS – Released 3/6/2024 – The number of job openings changed little at 8.9 million on the last business day of January, the U.S. Bureau of Labor Statistics reported. Over the month the number of hires and total separations was little changed 5.7 million and 5.3 million, respectively. Within separations, quits (3.4 million) and discharges (1.6 million) changed little.

Employment Cost Index – Released 1/31/2024 – Compensation costs for civilian workers increased 0.9% for the 3-month period ending in December 2023. The 12-month period ending in December 2023 saw compensation costs increase by 4.2. The 12-month period ending December 2022 increased 5.1%. Wages and salaries increased 4.3 percent over the 12-month December 2023 and increased 5.1 percent for the 12-month period ending in December 2022. Benefit costs increased 3.8 percent over the 12-month period ending December 2023 and increased 4.9 percent for the 12-month period ending in December 2022. This report is published quarterly.

This Week’s Economic Data- Blue links take you to data source

Existing Home Sales Released 3/21/2024 – Existing home sales in February increased 9.5% from January but fell 3.3% year over year. Existing home sales increased to 4.38 million in February seasonally adjusted. The median price of existing homes for sale increased to a record high of $384,500.

Housing Starts Released 3/19/2024 – February housing starts came in at 1,521,000, 10.7% above the January estimate and is 5.9% above the February 2023 rate. Building permits were 1.9% above the January rate at $1,518,000 and 2.4% above the February 2023 rate.

Recent Economic Data – Blue Links bring you to data source

Industrial Production and Capacity Utilization – Released 3/15/2024 – Industrial production increased 0.1% in February following a 0.5% decline in January. Manufacturing increased 0.8%. Utilities output decreased 7.5%. Mining increased 2.2%. Capacity utilization was unchanged at 78.3% in February, a rate that is 1.3% below its long-run average.

Producer Price Index – Released 3/14/2024  The Producer Price Index for final demand increased 0.6 percent in February, seasonally adjusted. Final demand increased 0.3 percent in January. On an unadjusted basis, the index for final demand moved up 1.6 percent for the 12 months ended in February.

Retail Sales– Released 3/14/2024 – Headline retail sales increased 0.6% in February and are up 1.5% above February 2023.

Consumer Price Index – Released 3/12/2024  The Consumer Price Index for All Urban Consumers increased 0.4 percent in February on a seasonally adjusted basis, after increasing 0.3 percent in January. Over the last 12 months, the all-items index increased 3.2 percent before seasonal adjustment.

U.S. Trade Balance – Released 3/7/2024 –  The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the goods and services deficit was $67.4 billion in January, up $3.3 billion from $64.2 billion in December. January exports were $257.2 billion, $0.3 billion more than December exports. January imports were $324.6 billion, $3.6 billion more than December imports. The January increase in the goods and services deficit reflected an increase in the goods deficit of $3.0 billion to $91.6 billion and a decrease in the services surplus of $0.3 billion to $24.2 billion.

Consumer Credit – Released 3/7/2024  Consumer credit increased at a seasonally adjusted annual rate of 4.7 percent in January. Revolving credit increased at an annual rate of 7.6 percent, while nonrevolving credit increased at an annual rate of 3.6 percent.

PMI Non-Manufacturing Index – Released 3/5/2024 – Economic activity in the services sector expanded in February for the 14th consecutive month as the Services PMI® registered 52.6 percent, 0.8 percentage points lower than January’s reading of 53.4 percent.

U.S. Construction Spending– Released 3/1/2024 – Construction spending during January 2024 was estimated at a seasonally adjusted annual rate of $2,102.4 billion, 0.2 percent below the revised December estimate of $2,105.8 billion. The January figure is 11.7 percent above the January 2023 estimate of $1,882.2 billion.

PMI Manufacturing Index – Released 3/1/2024 – The February Manufacturing PMI registered 47.8 percent, down 1.3 percent from January. The manufacturing sector continued in contraction for the 16th consecutive month following one unchanged month and 28 months of growth prior to that. The New Orders Index moved back into contraction territory at 49.2 percent, 3.3 percentage points lower than the figure of 52.5 percent recorded in January. The Production Index reading of 48.4 percent is a 2.0-percentage point decrease compared to January’s figure of 50.4 percent.

US Light Vehicle SalesReleased 2/29/2024 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 14.976 million units in January.

Chicago PMI – Released 2/29/2024 – Chicago PMI remained in contraction territory in February declining to 44.0 points down from 46.0 points in January. The latest reading indicated that Chicago’s economic activity contracted for the third consecutive month in February, and at the fastest rate in seven months.

Personal Income – Released 2/29/2024 – Personal income increased $233.7 billion (1.0 percent at a monthly rate) in January. Disposable personal income (DPI) increased $67.6 billion (0.3 percent). Personal consumption expenditures (PCE) increased $43.9 billion (0.2 percent).

Second Estimate of 4th Quarter 2023 GDP – Released 2/28/2024 – Real gross domestic product (GDP) surpassed expectations and increased at an annual rate of 3.2 percent in the fourth quarter of 2023, according to the “second” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 4.9 percent. The GDP “second” estimate is based on source data that are more complete than that released in the “advance” estimate. The update primarily reflected a downward revision to private inventory investment that was partly offset by upward revisions to state and local government spending and consumer spending. The increase in real GDP reflected increases in consumer spending, exports, state and local government spending, nonresidential fixed investment, federal government spending, private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Durable Goods Released 2/27/2024 – New orders for manufactured durable goods in January, down three of the last four months, decreased $18.0 billion or 6.1 percent to $276.7 billion, the U.S. Census Bureau announced today. This followed a 0.3 percent December decrease. Excluding transportation, new orders decreased 0.3 percent. Excluding defense, new orders decreased 7.3 percent. Transportation equipment, also down three of the last four months, led the decrease, $17.4 billion or 16.2 percent to $89.8 billion.

Consumer Confidence – Released 2/27/2024 – Consumer Confidence decreased in February, down to 106.7 from 110.9 in January. Expectations decreased from 81.5 to 79.8. February’s decrease in consumer confidence interrupted a three-month rise, reflecting persistent uncertainty about the US economy.

New Residential Sales  – Released 2/26/2024 – Sales of new single‐family houses in January 2024 were at a seasonally adjusted annual rate of 661,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 1.5 percent above the revised December rate of 651,000 and is 1.8 percent above the January 2023 estimate of 649,000. The median sales price of new houses sold in January 2024 was $420,700.  The average sales price was $534,300.  At the end of January, the seasonally adjusted estimate of new homes for sale was 456,000, a supply of 8.3 months at the current sales rate.

Next week we get data on New Residential Sales, Consumer Confidence, Durable Goods, 3rd Estimate of 4th Quarter GDP, Personal Income, and Chicago PMI.

Disclaimer

This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any stock, bond, currency or CFD contract.

Some information contained herein has been obtained from third party sources believed to be reliable, but has not been independently verified by us; its accuracy or completeness is not guaranteed. Our commentary is based on information considered to be reliable, but no representation is made that it is accurate or complete, and should not be relied upon as such.

The views expressed represent the opinions and beliefs at the time of this commentary and are not meant as a market forecast. These views are subject to change at any time based on market or other conditions and Good Life Advisors disclaims any responsibility to update such views. This information may not be relied on as advice or as an indication of trading intent on behalf of any portfolio. Portfolio investments may change at any time.

Economic and performance information referenced is historical and past performance does not guarantee future results. References to future returns are not promises or estimates of actual returns we may achieve, and should not be relied upon.

No investment strategy or risk management process can guarantee returns or eliminate risk in any market environment. Investing in securities involves risk of loss. Stock and Bond prices can decline significantly in response to adverse market conditions, company-specific events, and other domestic and international political and economic developments. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future.

While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Data Sources: 

Conference Board Economic Indicators   Bureau of Economic Analysis (BEA)   Congressional Budget Office (CBO)     U.S. Bureau of Labor Statistics (BLS)    Federal Reserve Economic Data (FRED Charts)

CME Fed Watch   U.S. Treasury – Yields   U.S. Census Bureau    Institute for Supply Management (ISM)    Weekly DOL Employment Data    BLS Monthly Jobs Report    JOLTS      All capital in one visualization 2020

US Energy Admn (EIA)   BLS Consumer Price Index CPI      BLS Producer Price Index PPIAtlanta Fed GDPNOW    NY Fed Nowcast GDP     US Census Bureau Housing Starts   U.S. Energy Admn

Consumer Credit  USCB Retail Sales   Construction Spending      Federal Reserve Dot Plots 2017   NY Empire Index    Philadelphia Federal Reserve   P/E Ratio Data -Yardeni Research

Technical Analysis Info: Koyfin.com  StockCharts.com – Financial Charts    Exponential vs Simple Moving Average

Other links: 1973 Arab Oil Embargo    Hunt Brothers Silver    Asian Contagion   Long-Term Capital bailout