Market Update – March 4th, 2024

Author:  Joe Maas, CIO SPG Advisors LLC

Monday, March 4th, 2024

 Financial Markets

Last week, investors found solace in the January PCE inflation data, as major indexes surged to new all-time highs. Both the S&P 500 and the Nasdaq Composite reached record levels, with the Nasdaq Composite achieving its first all-time high since 2021. As of close on Friday, March 1st, the Nasdaq Composite gained +1.74%, the S&P 500 gained +0.95%, the Dow Jones Industrial Average gained +0.2%, and the Barclays Aggregate Bond Index fell -0.11% for the week.

Market News

January PCE Inflation. January’s PCE inflation data came in as expected last week, with annual headline PCE inflation at 2.4% and core PCE at 2.8%. On a monthly basis, headline PCE increased by +0.3%, while core PCE rose by +0.4%, also in line with estimates. As PCE inflation nears the Federal Reserve’s 2% target, investors may be wondering why other measures of inflation, like the CPI, point to inflation above 3%.

The answer comes from how the two price indexes are computed. PCE considers total expenditures made for or by consumers, while CPI focuses solely on direct out of pocket costs to consumers. For example, health care costs in the PCE include the costs employers contribute for their employees as well as the direct costs to consumers, while the CPI only accounts for the direct costs consumers pay out of pocket.

Despite the difference in how the two widely watched inflation metrics are calculated, the Fed’s preferred method is the PCE, as it tracks a wider range of prices in the economy. With PCE moving closer to their 2% target inflation rate this is encouraging and hopefully prompts a scaling back of QT without sending the economy into a recession.

Personal Income, Spending, & Saving. Within the monthly PCE inflation report, it also provides valuable insights into personal income, spending, and savings activities in the month, offering a glimpse into consumer behavior and sentiment regarding near-term economic conditions. In January, personal income rose substantially with a monthly increase of +1%, surpassing the forecast of +0.3%. Furthermore, disposable personal income, which accounts for after-tax income, also experienced a monthly rise of +0.3%.

Despite the rise in income, personal spending declined by -0.1%. Personal outlays, which include spending, interest payments, and transfer payments, increased by +0.3% MoM. Alternatively, the personal savings rate saw a slight uptick to 3.8%. Overall, January marked a month of higher income, scaled back spending, and slightly more saving.

Durable Goods. January durable goods orders experienced a significant decline, falling by -6.1% from December, compared to the anticipated drop of -5%. This marks the most substantial monthly decrease in durable goods orders over the past twelve months. Within this month’s report, orders were heavily weighed down by transportation. When transportation is excluded, new orders only decreased by -0.3%. The downturn was primarily driven by the transportation equipment sector, which witnessed a significant drop of $17.4 billion, accounting for a -16.2% monthly decrease in the category.

Durable goods play a crucial role in the economy, typically constituting a significant portion of GDP, often in the range of 5% to 10% of total GDP. Therefore, fluctuations in durable goods orders can significantly impact quarterly GDP figures. With the preliminary Q1 GDP report scheduled for release in April, it will be crucial to continue monitoring its various components, like durable goods.

February Consumer Confidence. February’s Consumer Confidence Index pulled back -3.8% after three consecutive months of gains. This decline came as a surprise, as expectations were for a +3.8% increase in consumer confidence for February. Looking at demographics of respondents, the drop in confidence was widespread, impacting all income groups except for households earning less than $15,000 and those earning more than $125,000.

According to February’s write-in responses to the index’s survey, consumers continue to be primarily preoccupied with overall inflation, however, there has been a slight alleviation in concerns regarding food and gas prices. On the other hand, respondents expressed growing concerns about the labor market situation and the political environment in the United States, particularly as the US enters a contemptuous election cycle.

Bitcoin Rally. Since the start of the year, Bitcoin has experienced a significant rally, with its price climbing from around $44,000 to surpassing the $60,000 threshold last week, marking the first time BTC has traded at such levels since late 2021. One factor contributing to Bitcoin’s recent price increase is the upcoming halving event scheduled for April 19th, 2024. During a halving, the rewards for Bitcoin miners are reduced by half, resulting in a decrease in the rate at which new Bitcoins are created. This scarcity can lead to increased demand and, consequently, a higher price for BTC.

Halving events are a fundamental aspect of Bitcoin’s rules and have occurred approximately every four years since the cryptocurrency was created in 2009. Previous halvings took place in 2012, 2016, and 2020, with subsequent ones expected in April, as well as in 2028 and 2032.

Additionally, by BTC’s protocols, the cryptocurrency’s fixed supply likely won’t be fully mined until the year 2140. Currently, over 90% of the total supply has already been mined, highlighting the finite nature of this digital asset – one of its major draws for investors. Add on top of all of this, the recent SEC approval of BTC ETFs, which offers investors another vehicle to owning BTC, and the rally makes further sense. Only time will tell the future of Bitcoin and its adoption, but for now it remains an innovative asset class with notable potential to keep an eye on.

Summary

Equities continued to rally last week, fueled by January’s PCE inflation data showing headline inflation at 2.4% YoY, propelling major indexes to new all-time highs, with both the S&P 500 and the Nasdaq Composite reaching record levels. Additionally, personal income rose while spending declined, leading to a slight increase in the savings rate. Durable goods orders fell by -6.1%, mainly due to a drop in transportation. February’s Consumer Confidence Index unexpectedly dropped by -3.8%. Meanwhile, Bitcoin rallied to over $60,000, driven by anticipation of the upcoming halving event in April 2024.

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.