Market Update – April 1st, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, April 1st, 2024

Financial Markets

Last week marked the end of March, demonstrating a continuation of the rally that began last fall. For the month, the S&P 500 rose +3.18%, the Dow Jones Industrial Average rose +2.12%, and the Nasdaq Composite rose +1.86%. On the other hand, the Barclays Aggregate Bond Index made small gains, up +0.6% by the end of the month.

Market News

PCE Inflation: In February, PCE inflation remained elevated, continuing a trend of sticky inflationary pressures. On an annual basis, PCE inflation rose to 2.5%, a slight increase from January’s rate, while core PCE inflation reached 2.8% down from January. For monthly figures, PCE and core PCE inflation both rose by +0.3%. As inflation continues to run hotter than the Federal Reserve’s 2% target, investors are simultaneously awaiting a rate cut, likely to start this summer, as the Fed also balances the risk of too much quantitative tightening.

Personal Income, Expenses, & Savings: In February, personal income rose +0.3% MoM, falling short of the expected +0.5% increase. Disposable personal income, which is net of taxes, rose a slimmer +0.2% in the month. Conversely, personal spending surged by +0.8% MoM, exceeding expectations of a +0.5% rise. The personal savings rate declined to 3.6% of disposable personal income, down from January’s 4.1% savings. Overall, this month’s report highlights robust spending patterns, however in the aggregate, consumers are lacking the income growth necessary to sustain this spending, leading to diminished savings rates.

Bearish Trend in New Home Prices: The latest data on new home sales in February paints a bearish picture as prices edge closer to official bear market territory. New home sales volumes met expectations with 662,000 new homes sold in February, however the median sales price fell -3.5% from January, continuing a downtrend we’ve seen for more than a year.

With a bear market typically defined by a decline of -20% or more from a market’s peak, the trajectory of new home prices is near official bear market status. Since the peak of prices in October 2022 at $496,800, the median sales price has fallen by -19.4% to $400,500 in February 2024. With such a narrow margin from a -20% drop, next month’s data or even a slight revision could potentially push new home prices into bear market territory, with far-reaching implications for the housing sector.

Durable Goods Orders: Durable goods orders in the month of February saw a +1.4% increase MoM, in line with economists’ predictions. Transportation equipment led the rise with a notable +3.3% jump, rebounding from previous declines during the two prior months. The manufacturing sector has continued to face challenges in the early months of 2024, with January’s figures revised down from -6.1% to -6.9%, reflecting a shaky start to the year. February’s modest +1.4% increase, while positive, falls short of strong growth, with both data points likely to weigh on first quarter GDP growth, as durable good purchases constitute a significant part of GDP.

Consumer Confidence: The Conference Board’s Consumer Confidence Index in March remained relatively stable at 104.7, down slightly from February’s 104.8 index. Despite this consistency, there were a few shifts in respondents’ sentiment. While there was a small improvement in consumers’ assessment of current economic conditions, there was also a growing sense of pessimism regarding future economic conditions in survey responses. Also, consumers aged 55 and over displayed increased economic optimism, while those under age 55 showed a decline in confidence. Ongoing monitoring of consumer sentiment will be crucial to understanding consumer perceptions and their impact on market conditions.

Upward Revisions: Last week, both real GDP estimates and consumer sentiment data were revised upward, surprising markets positively. On Thursday, March 28th, the Bureau of Economic Analysis unveiled its third estimate of 2023’s fourth quarter GDP growth, revealing a 3.4% annual growth rate compared to the previous estimate of 3.2%. This report also reiterated that the positive Q4 2023 GDP growth was driven by increases in consumer spending, state and local government spending, exports, nonresidential fixed investment, federal government spending, and residential fixed investment.

Alongside the upward real GDP revisions, the University of Michigan’s Consumer Sentiment Index for the month of March was also revised upwards this week. While the previous reading for March sat at 76.5, this week’s revision put the Consumer Sentiment Index at 79.4, marking the highest level since July 2021. Both data points demonstrate a continually stronger than expected US economy.

Summary:
Last week marked the end of March and Q1 as stocks continued their rallies. Key inflationary data came in, showing PCE inflation at 2.5% annually and core PCE inflation at 2.8%. February personal income rose +0.3%, while spending rose +0.8%, leading the personal savings rate to drop to 3.6%. New home prices dropped by -3.5% from January, nearing bear market territory from the peak of new home prices in 2021. Durable goods orders increased modestly by +1.4%, but downward revisions in January underscored challenges in the manufacturing sector. Consumer confidence remained stable in March. Upward revisions in real GDP and consumer sentiment data provided positive surprises, indicating a resilient US economy.

In closing, we want to express our sincere gratitude to our valued readers and loyal customers for entrusting us with your financial well-being. Your continued support is the cornerstone of our success, and we are committed to serving you with the utmost dedication and professionalism. As we navigate the ever-changing financial landscape together, we encourage you to reach out to us if there have been any shifts in your risk tolerance or if you have experienced any material changes in your Investment Policy Statement objectives or constraints. Your financial goals are our top priority, and we are here to adapt and tailor our strategies to align with your evolving needs, whether they pertain to risk and return objectives or constraints such as time horizon, taxes, liquidity needs, legal issues, unique circumstances, or changes in your financial planning and retirement objectives. Your feedback and communication are essential in helping us ensure your financial success. We look forward to continuing this journey together.

We appreciate your continued trust.

Thank you,

Joseph M. Maas,
CFA, CFP®, ChFC, CLU®, MSFS, CCIM, CVA, ABAR, CM&AA

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.