Category: Global Markets

As of Friday, March 22, 2024, the Federal Reserve has revised its U.S. economic growth forecast for 2024, painting a brighter future for the economy. According to the latest projections shared by Edward Jones, the Fed now anticipates a 2.1% GDP growth rate for the upcoming year, a notable increase from its previous 1.4% estimate. This optimistic adjustment is underpinned by a strong economy, a robust labor market, and declining inflation rates, albeit with a slight uptick in the unemployment rate to 4.0% anticipated for 2024.

The backdrop to this revision is a series of higher-than-expected consumer price index (CPI) readings for the initial months of the year, stirring concerns among investors and policymakers alike. Yet, Fed Chair Jerome Powell has offered a reassurance, suggesting that despite the CPI’s overshoot beyond the Fed’s 2% inflation target, a gradual return to this threshold is expected. The Fed’s outlook hinges on various data trends, including those in shelter and rent costs, hinting at a complex yet manageable path ahead for monetary policy.

Another pivotal development comes from the Fed’s indication of a potential slowdown in its balance-sheet reduction efforts, part of its broader quantitative tightening measures. From a peak of around $9 trillion in April 2022, the Fed’s balance sheet has been trimmed down to approximately $7.5 trillion. This strategic shift signals a move towards policy easing, potentially heralding a new phase of market dynamics that could buoy investor sentiment and financial markets.

The Fed’s stance is not isolated, as central banks globally are aligning with its trajectory towards easing monetary policies. Noteworthy moves include the Swiss National Bank’s rate cut to 1.5% and the Bank of Japan’s first rate hike in 17 years, transitioning away from a longstanding negative interest-rate policy. These actions underscore a global momentum towards adapting monetary policies in response to evolving economic conditions, suggesting a concerted effort to sustain growth and manage inflation across major economies.

Market reactions to these developments have been overwhelmingly positive, with significant gains observed across major stock indexes, including the S&P 500. Notably, small-cap and mid-cap indexes have outperformed, signaling a broadening of market leadership beyond the usual suspects.

This trend is further accelerated by gains across various sectors including financials, energy, and industrials, indicating a healthier market dynamic. The confluence of anticipated rate cuts, easing inflation, and improved earnings growth forecasts paints a promising picture for the global economic outlook and stock market performance.

In summary, although the Federal Reserve’s updated economic forecast alongside global central banks’ policy shifts could herald a new era of growth, stability, and opportunity in the financial markets. Investors and market watchers will undoubtedly keep a close eye on upcoming data releases and central bank announcements to navigate this evolving landscape.

For further details and analysis, stay tuned to Daily Investment Advice, and follow updates from Edward Jones, and other financial services firms. Thank you Edward Jones for providing the data needed for this weekly report.

The week of March 11th to March 15th, 2024, presented a mix of events and outcomes across various markets, highlighted by movements in the stock market, cryptocurrencies, and other significant financial occurrences.

Stock Market Overview:
The week witnessed volatility across major stock indices, driven by a range of factors including inflation data and anticipation of central bank actions. Notably, inflation data exerted a significant influence, causing stocks to retreat Friday afternoon.

The release of a hotter-than-expected Producer Price Index report resulted in stocks declining and bond yields rising. For example, high flying companies like Nvidia saw fluctuations, dropping 2% on Monday, but NVDA still finished up for the week by 1.69%. By the week’s end, the S&P 500 and Dow Jones slightly gained, while the Nasdaq experienced a slight decline.

Cryptocurrencies, particularly Bitcoin, fell by 1.06% on the week, to 68,299.80 as of writing this. The crypto market’s behavior underscores the ongoing volatility as it relates to cryptocurrencies as alternative investment options, especially amidst market volatility and inflation concerns.

Economic Indicators and Market Sentiments:
The U.S. market also paid close attention to several economic indicators and corporate news, which offered insights into both broader economic health, along with individual company prospects. Notable corporate developments included strategic decisions by Volkswagen Australia and Telecom Italia, and challenges faced by Tesla’s Gigafactory in Germany. The market was also attentive to the upcoming earnings lineup featuring a diverse mix of sectors, which could influence future market directions.

Oil and Gold Prices:
Oil prices experienced a bump, influenced by various factors, including a withdrawal in U.S. crude inventories, a bigger-than-expected drop in U.S. gasoline stocks, and attacks on Russian refineries. Gold prices saw a slight decline after reaching record highs in the previous week, as investors weigh potential future rate cuts, and their impact on the market as it relates to future gold prices.

Looking Ahead:
As the market navigates through these uncertainties, upcoming events including the Federal Open Market Committee (FOMC) meeting and new earnings reports are expected to be closely watched by investors. These events could provide further clarity on the Federal Reserve’s monetary policy stance and its implications for the market.

In summary, the week of March 11th to March 15th, 2024, was characterized by a mix of cautious optimism and underlying uncertainties, with inflation data, corporate news, and various global events shaping market sentiment. As we move forward, it will be important to remain vigilant as an investor, keeping an eye on Federal Reserve policy, and other factors that could influence market dynamics and the trajectory overall.

This week in the stock market has been marked by notable events and various performance across various asset classes. Equity markets have held onto most of their prior week gains, and thus are maintaining their bullish momentum. Meanwhile, Bitcoin hit nearly $70,000 earlier today.

The earnings season has brought positive surprises, including Nvidia’s (NVDA) stellar performance and parabolic run. This growth is largely driven by a narrow group of mega-cap tech companies which consists of “The Magnificent 7”, but the positive results are beginning to spread more broadly across the market.

On the bond side, investment-grade bond prices declined in February, influenced by upside surprises in consumer and producer prices, along with a shift in rate-cut expectations. The Federal Reserve is not expected to rush into policy easing, and this adjustment presents another opportunity for investors to consider extending the duration of their fixed-income portfolios.

Market concentration has also been a point of discussion, with the “Magnificent 7″ stocks driving much of the market’s performance. However, a potential broadening of the market rally is beginning to take shape, and is further anticipated by many investors, as they look towards mid- and small-cap stocks, which could benefit from a Fed pivot to rate cuts, along with overall improvements in economic indicators.

The bull market gains suggest further upside potential for equities and “risk on” assets such as Bitcoin, which has been supported by an improved economic, earnings, and inflation outlook.

However, the pace of gains may slow, and increased volatility is always a consideration. Historical analysis of past bull markets suggests that while the current market rally has been strong, things do not always continue this way.

From a global perspective, market data indicates mixed movements across major indexes. The S&P 500, NASDAQ and Dow Jones experienced marginal declines on the week, but this is following a significant rally to all-time highs for all of the indexes. See the charts for the three indexes below:

The commodities market, on the other hand, saw gold prices continuing their rally, whereas Brent crude oil faced a slight decline, and copper was up over 1% on the week.

Investors are closely monitoring the economic data and Federal Reserve’s next moves, especially in light of the recent job market data, which supports the Fed’s cautious stance on rate cuts. The evolving economic landscape and the Fed’s policy decisions will continue to play crucial roles in shaping market trends, along with potential investment strategies in the coming weeks.

Market Recap

• U.S. stocks closed higher on Friday, March 1st as of the close, with the Nasdaq and S&P 500 reaching new record closing highs.
• The Dow Jones Industrial Average (DJIA) rose 0.23% for the week, to 39,087.38.
• The S&P 500 jumped .87% to 5,137.08, setting a new record.
• The Nasdaq also claimed a fresh all-time record, closing the week up 1.63% to 16,274.94, This is an all-time fresh record, surpassing the level we saw in November of 2021.

Key Events

• Personal consumption expenditures (PCE) data for January showed a rise of .4%, potentially indicating continued inflationary pressures.
• Federal Reserve speakers are scheduled throughout the week, and their comments on the economic and monetary policy outlook will be closely watched by investors.
• China’s official manufacturing PMI for February slipped slightly to 49.1, remaining in contraction territory.

Sector Performance

• Nine of the 11 S&P 500 sectors ended the week in positive territory.
• The technology sector performed well, with the Technology Select Sector SPDR (XLK) gaining 2.24%.
• The communication services sector also saw gains, with the Communication Services Select Sector SPDR (XLC) rising 0.78%.

Looking Ahead

• Investors will continue to monitor comments from Fed officials for clues on the future path of interest rates.
• Earnings season is also in full swing, with reports from several major companies expected in the coming days.
• Global economic data will also be important, as investors assess the potential for a slowdown in major economies.

This has been an official summary of the market activity for the week ending March 1st, 2024. Have a great weekend!

Over the past week, the stock market has seen notable developments, highlighted by the S&P 500 crossing the 5,000 milestone, a record high that reflects investor optimism and the strength of the market. This milestone is seen as both a psychological and symbolic indicator of the market’s resilience, despite previous adjustments. The technology sector in particular, led by mega-cap stocks such as Microsoft, played a significant role in driving the S&P 500 to this new record, showcasing the ongoing influence of technology companies in the market’s overall performance.

The market’s upward trajectory is supported by several factors, including positive corporate earnings reports and a general sense that the Federal Reserve might adopt a less restrictive monetary policy if inflation continues to moderate. Approximately halfway through the earnings season, around 80% of reporting companies have beaten estimates, with S&P 500 earnings growing by 4.2% in the fourth quarter. Growth sectors including communication services, consumer discretionary, and technology have been particularly strong, buoyed in part by the tailwinds from AI technologies.

Furthermore, there’s a growing consensus that the threat of a recession is diminishing, with economic indicators suggesting a more favorable outlook. A decline in the percentage of banks reporting tighter credit conditions and a rise in productivity, which helps keep unit labor costs in check, are among the signs that the economy may be on a firmer footing. This backdrop has led to expectations that any economic slowdown will be moderate, allowing the bull market to continue through the year.

However, the market’s gains have been concentrated in a few sectors, with technology, communication services, and health care outperforming. There’s anticipation that market leadership could broaden later in the year, with more sectors participating in the rally, especially if the Fed adjusts interest rates in response to improved inflation metrics, rather than a downturn in growth.

Internationally, Chinese equities have shown signs of rallying, supported by policy measures from Chinese authorities, including increased purchases of ETFs linked to Chinese stocks and other steps to bolster the market. Despite these moves, the Shanghai Composite has been on the decline recently, reflecting the interconnectedness of global financial markets and the influence of policy actions on investor sentiment.

In summary, the stock market over the past week has been marked by significant achievements, such as the S&P 500 breaking the 5,000 barrier, and an overall positive outlook bolstered by strong earnings, technological advancements, and policy expectations. While challenges remain, including the need for broader market participation and international uncertainties, the current trends suggest a continued positive momentum for the U.S. stock market.

The bond market has been quite eventful in recent days. The 10-year US Treasury yield recently fell below the key 4% level, following Federal Reserve Chair Jerome Powell indicating that an interest rate cut was unlikely at the March meeting, but would likely come later this year. This caused yields to take a leg down, with the benchmark yield falling nearly 13 basis points to 3.929%. The yield on the 2-year Treasury also fell 13 basis points to 4.227%.

China’s 10 Year Bond Yield Rallies Big

Meanwhile, the yield on China’s 10-year bond yield (CBG10Y) has had its biggest rally in recent memory, prompting concerns about a potential shift in the markets. An analyst who has been involved in the Asian markets for 30 years predicts that the Hang Seng Index (HSI) could sell off hard if the CGB10Y continues to come in, and potentially fall into a heap of pain and trouble if the yield reaches 2%-2.25%.

Corporate Debt Yields Keep Falling

In the corporate bond market, yields have been falling, particularly on investment-grade debt. The average yield on new, investment-grade corporate bonds is almost a full percentage point below where it was in November, causing activity in the corporate bond market to heat up. Demand for corporate debt is strong, which means corporate issuers are taking advantage of it, and many bond buyers are entering the market because they expect yields to fall further once the Federal Reserve starts cutting rates.

BonBloxx Launches New Corporate Bond ETFs

BondBloxx has launched three ETFs that offer exposure to triple B rated corporate bonds, targeting BBB-rated corporate bonds within their respective maturity ranges. These ETFs offer a new level of precision for investors looking to target this segment of the investment-grade corporate bond market, which has historically outperformed the broad investment-grade corporate bond universe by more than 50 basis points per year with no incremental default risk.

Fed Keeps Rates Unchanged in Most Recent Meeting

In the FOMC meeting held on January 31, 2024, the committee decided to keep interest rates unchanged at the 5.25%-5.50% range, as was widely expected. The Fed also reiterated its commitment to achieving its 2% inflation target and maintaining a strong labor market.

The decision was seen as a nod to the current economic conditions, which have shown resilience despite global headwinds.

Overall, the bond market is pricing in rate cuts in the near future, with the market now expecting 147 basis points of rate cuts this year, up from 130 basis points earlier this week. The FOMC’s decision to keep rates unchanged for now suggests that the central bank is taking a wait-and-see approach, but the door remains open for future rate cuts if economic conditions warrant it.