Hello all - we hope you had a nice March.
The month was another solid one for stocks, with all major markets closing at or near record highs. For the month, the Dow rose 2.1%, the S&P 500 gained 3.2%, and the Nasdaq, which has a higher concentration of tech stocks, added 1.8%.
This also marked the end of the first quarter in 2024, which was the best start to the year since 2019.
The month was another solid one for stocks, with all major markets closing at or near record highs. For the month, the Dow rose 2.1%, the S&P 500 gained 3.2%, and the Nasdaq, which has a higher concentration of tech stocks, added 1.8%.
This also marked the end of the first quarter in 2024, which was the best start to the year since 2019.
Here’s a look at how the markets moved this month:
The market has seen a steady rise since November of 2023. Interestingly, it has traded in a narrow, upward sloping range as you can see in the image below.
We’ve seen the markets trade in a range like this often in recent years as investors focus on the central banks and their stimulus program. The chart below shows the steady rise of the markets from 2020-2022. It feels like we are in that same environment right now.
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FED
The Fed was a big topic this month as Fed chief Powell appeared before Congress and the Fed held another policy meeting. There wasn’t a lot new discussed, but the market saw that as a good sign and rallied on the lack of bad news.
Late in the month, though, several regional Fed presidents discussed how economic data like inflation was still high, and they were hesitant to cut interest rates too soon. The markets didn’t really react on the news, but we think this is something to pay attention to. From everything we’ve seen and heard, we don’t think the cuts will be as soon or as big as investors think. The eventual realization could set the market up for a disappointment and send stocks lower.
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INFLATION
Inflation is a key economic metric the Fed follows, which is why we discuss it first. Inflation has been trending lower over the last two years, which is why investors believe the Fed will start lowering rates soon.
However, the inflation level seems to have stalled over the last several months.
While you can see a decline in inflation in the chart above, that’s looking at it from an annual perspective. If you were to look at inflation month-by-month, prices continue to rise every month.
Excluding energy and food, which economists call the “core” measurement, inflation is still solidly rising every month.
The PPI, which is the inflation at the business level before they pass on the price increases to us, showed a strong increase last month.
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OTHER ECONOMIC DATA
Economic data released this month was mixed. Overall, the economy still looks healthy, but there are pockets of concern.
First, we’ll look at the leading economic indicators, which we’ve talked about for months. This index combines many other indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).
This index had been lower for 22-straight months now, but it finally turned higher this month! It had never gone this low for this long without a recession following, but it’s possible this will be the first time. Only time will tell.
Here are the various indicators used in the leading indicator index:
The manufacturing sector of our economy still appears to be contracting (a number below 50 indicates contraction), and took a turn lower last month. The services sector is expanding, but it also took a turn lower last month.
Retail sales saw a nice improvement last month:
Durable goods (these are items with a longer life, like a phone or refrigerator) also turned higher.
Consumer confidence dipped slightly last month:
Small business optimism was slightly lower, too:
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Where does the market go from here?
Our indicators show that the market remains very expensive here. But it remains resilient, too. We wouldn’t be sellers at this time, but aren’t excited about putting new money in, either.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
