Market Update – March 25th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, March 25th, 2024

Financial Markets

Last week, market sentiment remained bullish as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all reached record highs following the Federal Reserve meeting on Wednesday. By the close of trading on Friday, March 22nd, the Nasdaq Composite led the week with a +2.85% gain, followed by the S&P 500 with a +2.3% increase, the Dow Jones Industrial Average with a +2% uptick, and the Barclays Aggregate Bond Index with a modest +0.7% gain.

Market News

March Fed Meeting. In March’s FOMC meeting held last week, the Federal Reserve’s actions and their updated Summary of Economic Projections (SEP) brought about minimal surprises, sparking a rally in stocks on Wednesday afternoon post the press conference. During the press conference, Chairman Powell emphasized the progress made towards managing inflation, referring to January and February’s hot inflationary data as “bumpy.”

March’s meeting also brought the Fed’s first Summary of Economic Projections of 2024, which comprises of a set of projection materials FOMC participants release four times a year. The Fed’s anticipation of rate cuts remains unchanged from December’s projections, which answered the market’s largest concern of this Fed meeting. On the other hand, projections for the Federal Funds rate in 2025 and 2026 show expectations of a slightly higher Fed Funds rate than the December projections, meaning Fed members believe there will be less of a need to loosen monetary policy in the coming years.

Furthermore, FOMC members’ expectations for GDP growth for this year as well as for 2025 and 2026 were notably revised upward from December’s estimates. However, it’s noteworthy that according to FOMC participants, median expectations suggest that PCE inflation may not hit the exact 2% target until 2026. Additionally, the median projection for the unemployment rate by the end of this year stands at 4%, only marginally higher than February’s rate of 3.9%, indicating that the Fed believes there will be little softening of labor markets by the end of the year.

Source: Federal Reserve

Looking forward, expectations for the first-rate cut have consolidated to June. The probability of a rate cut by or during the June meeting is now priced in at 72.8% (as of March 22nd), compared to a week earlier when it stood at 58.8%. Overall, throughout the March FOMC meeting, investors found solace in both Powell and the SEP’s lack of deviation from market expectations, ultimately causing stocks to hit all-time highs on Wednesday afternoon.

Bank of Japan Ends Negative Rates. The Bank of Japan made headlines last week by hiking rates for the first time since 2007. Prior to last week, Japan stood as the sole country with negative interest rates, a policy that began in 2016, effectively meaning that it would cost interest to store money in a bank account. The central bank’s announcement last week raised their policy rate to a range of 0 to 0.1%.

The decision marks a departure from the prolonged era of negative rates initiated in 2016, a strategy aimed at bolstering Japan’s sluggish economy. Despite initial intentions to stimulate growth, the negative interest rate policy has failed to propel large scale GDP growth. In addition to the rate hike, the BoJ announced the discontinuation of its yield curve control program and ceased market purchases of ETFs, signaling a comprehensive shift in monetary policy. Only time will tell how Japan’s economic growth changes in response to this notable central bank pivot.

Leading Indicators. February’s Leading Economic Index surpassed expectations with a monthly increase of +0.1%, compared to forecasts of a -0.1% decline. Notably, this marks the first positive monthly movement since February of 2022. Strengths in manufacturing hours worked, the S&P 500, the Leading Credit Index, and residential construction drove the LEI’s first monthly rise in two years.

On the other hand, consumers’ expectations and the ISM Index of New Orders continue to lag, and the six- and twelve-month growth rates of the overall LEI remain in bearish territory. Over the six-month period ending February 2024, the LEI experienced a -2.6% contraction, showing improvement from the previous six-month decline of -3.8%. However, this still presents a pre-recessionary signal that contradicts much of the other economic data we are observing.

Existing Home Sales. In February, existing home sales saw a monthly surge of +9.5%, totaling 4.38 million homes sold. This marks the largest monthly increase since February 2023. From a year ago, sales were down -3.3%, although this annual decrease is lower than the previous months’ data. Also in the existing homes sales report, the median existing home sales price rose by +5.7% from February 2023 to $384,500, marking the eighth consecutive month of year-on-year price gains.

The inventory of unsold existing homes increased by 5.9% from the previous month, resulting in a 2.9 months’ supply at the current monthly sales pace. Moving forward, it will be interesting to see whether sales volumes rise during the spring moving season or if higher mortgage rates continue to deter movement in residential real estate markets.

Reddit IPO. The highly anticipated Reddit IPO debuted on Thursday, March 21st, marking the first major social media IPO since 2019. Trading under the ticker symbol RDDT on the New York Stock Exchange, the initial public offering was priced at $34 per share and quickly surged, closing above $50 per share on its first day of trading.

Reddit, along with its existing shareholders, successfully raised approximately $750 million from the offering, with the company itself collecting around $519 million in proceeds. The IPO’s performance is being closely watched as it could serve as a significant indicator for the broader IPO market and the potential trajectory of other social media and technology companies eyeing public offerings in the near future.

Summary

Last week, market sentiment remained bullish as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all reached record highs following the Federal Reserve meeting on Wednesday. The March Fed meeting and updated Summary of Economic Projections brought minimal surprises, prompting a rally in stocks on Wednesday afternoon following the press conference. Additionally, the Bank of Japan’s decision to hike rates for the first time since 2007 marked a significant departure from their prolonged era of loose monetary policy, as they were the last country to depart from negative interest rates. Furthermore, February’s Leading Economic Index exceeded expectations with a monthly increase of +0.1%, marking the first positive movement since February of 2022. Existing home sales also saw a notable surge in February, while the highly anticipated Reddit IPO debuted on Thursday last week, raising approximately $750 million from the offering.

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.