April 1, 2024

March saw U.S. equities end the month higher as the S&P 500 had its best first quarter since 2019. Expectations for rate cuts in 2024 have moderated as real GDP numbers increased 2.5% in 2023 and real GDP for 2024 is expected to grow more than 2%. February’s higher-than-expected inflation reports had the markets concerned until chairman Powell’s reassuring message in his post meeting press conference. Despite the upbeat rhetoric, rates remained unchanged with the mantra of “higher for longer” the most likely probability. Although no major changes were made at this last meeting, updated projections are that future rate cuts may be more significant than .25%.

Consumer prices increased 0.4% month over month and 3.2% year over year in February, due to higher energy costs. Wholesale inflation jumped 0.6% month over month as goods prices saw the biggest increase since August 2023, while gasoline jumped 6.8%. The probability of a rate cut in June sank to around 55%, down from more than 80% one month ago, according to Fed Funds futures.

In other economic news, U.S. retail sales rebounded but came in below estimates, suggesting that early 2024 consumer spending growth continues slowing. Consumer sentiment held steady in early March while inflation expectations were unchanged. U.S. industrial production rose 0.1% in February, recovering from the prior month’s weather-related weakness. However, manufacturing activity in New York state slumped as new orders plunged, according to the March survey.

With the high-flying Nasdaq Composite index was essentially flat this month, technology stocks and the broader market could be vulnerable if the Fed chooses a more hawkish policy path than is currently anticipated.

Expectations for the number of rate cuts this year have dropped to three, which may still be overly optimistic. If the Fed’s fears of resurgent inflation cause it to keep interest rates higher for longer, it could derail the equity rally. Looking at the 10-Year Treasury index (TNX), a new daily uptrend began at the end of last year, which until now seemed like it might just be a countertrend rally. However, last week’s surge has the index on the cusp of another new high in this uptrend.

Looking ahead, the economic outlook remains optimistic but cautious.  While economic indicators point to continued growth, challenges such as inflation, supply chain disruptions, and geopolitical risks require careful attention. As your financial advisor, our focus is on managing risk, diversifying portfolios, and identifying opportunities that align with your long-term financial goals.

The yield on the 10-year Treasury note went down to 4.20%, and the yield on the two-year Treasury yield decreased to 4.59%. Through the end of March, the major indices closed higher with the Dow, S&P 500, and NASDAQ at 5.62%, 10.16%, 9.11%, respectively.

*Disclaimer: This report is a publication of Marchand Faries Financial Management, Inc. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.  All expressions of opinion reflect the judgement of the author as of the date of publication and are subject to change.