HWM Market Recap - April 2024
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In last month’s newsletter, we discussed that the rally in the stock market since last October’s lows was primarily due to a narrow section of the market and driven mainly by artificial intelligence-related stocks. We have seen this trend continue through March. Moreover, consumer optimism continues to be an area of high importance. Generally, the economy follows in the footsteps of consumer outlooks. As long as consumers are optimistic, the economy should move in a positive direction. Given the positive numbers we saw in March for the University of Michigan’s Consumer Sentiment Index, this leaves us hopeful for general expectations about the economy.
Since the start of the year, everyone has been wondering when the Federal Reserve will cut interest rates, and all eyes have been keenly watching inflation data. Last week, we saw the broader stock market dip when the Minneapolis Fed President, Neel Kashkari, commented that the central bank may not make any rate cuts at all in 2024 if inflation numbers continue to move sideways. However, the predominant viewpoint on Wall Street is that the stock market’s performance last week had little to do with Kashkari’s words and more to do with several other factors, including geopolitical concerns and complacency in the market. Generally, an expensive and crowded market is kindling for these sudden sharp moves lower, which is all that it seems to have been. Therefore, the bull market (at least for now) appears to be still intact.
So it begs the question: Will the Fed lower rates this year or not? There is something to be said that the first move is more momentous than any subsequent moves. This is because the Fed would be setting a direction forward, and they want to be careful about choosing which moment to do so. Ideally, after the Fed begins lowering rates, they do not want to be put in a position to have to reverse course and start raising them again.
Recent data and leading economic models show that bringing inflation down the last bit to the Fed's long-term target may not be so easy. Furthermore, it is no surprise that Fed officials are making a concerted effort to manage investor expectations about how many rate cuts will come in 2024. Therefore, with the upcoming inflation reports, the key will be whether we see the inflation rate continuing to decrease. We saw this downward trend in the second half of last year, and if that continues, it will give the Federal Reserve comfort in making the first move to reduce interest rates.
On the other hand, with the economy’s performance and the stock market doing so well, some investors are asking, ‘What is the rush to cut rates?’ For now, it seems there is no urgency in the short term to reduce rates to a more normalized level. We are also in an election year, and as we get closer to November, there may be hesitation about making any moves. It remains to be seen whether the Fed’s policies up until now, including raising rates to their highest level in over twenty years, will safely bring down inflation to its two percent target.
As portfolio managers, we are continually balancing between risk and reward. Proponents of this market argue that there is no limit to the potential of artificial intelligence usage and its impact on the global economy. More conservative-oriented contrarians advise caution in narrow markets like this until we see broadening out among other sectors. For now, our portfolios are positioned to do well in this market without leaving overexposure to these concentrated areas if we see a correction. At the same time, our cash reserves continue to earn 5% with extremely little risk.
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Monthly Changes in Indices
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Monthly Performance By Sector
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The Federal Reserve announced in its March meeting that it will again not raise interest rates. This marks the fifth consecutive rate hold from the central bank.
In February, the Consumer Price Index (CPI) increased 0.4% month-over-month and rose 3.2% over the last 12 months. Core CPI (which does not include prices for food and energy) increased 0.4% month-over-month in February, up 3.8% over the previous year. This marks the second consecutive month that inflation numbers came in higher than expected.
The Personal Consumption Expenditures Price Index (PCE), the Fed’s preferred inflation tracker, rose 0.3% month-over-month in February – up 2.5% from the year prior.
According to the Bureau of Labor Statistics, the US added 303,000 jobs in March. The unemployment rate remained relatively flat—3.8% compared to 3.9% in February. As the Employment Situation Summary reports, “The unemployment rate has been in a narrow range of 3.7 percent to 3.9 percent since August 2023.”
Consumer spending, which accounts for more than two-thirds of US economic activity, jumped 0.8% in February, marking the largest gain since January 2023.
While many companies have adopted hybrid- or remote-working practices, more bosses are requiring their employees to return to the office full-time. However, those employers that cannot compete with flexible work schedules must compete more aggressively with wages. According to data from ZipRecruiter, workers who switched from fully remote jobs to fully in-office roles through 2023 received a 29.2% pay bump. This is nearly double that of those who changed jobs in the opposite direction.
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About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.
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