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Market Commentary - March 2024

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March 2024

Stocks surge in February, posting fourth straight month of gains and record highs

When the Fed pivoted in early November following their FOMC meeting and signaled they were done raising interest rates, stocks and bonds rallied very strongly to year end. Markets were thrilled that the Fed finally took the one last rate hike off the table that had been suppressing investor confidence. Not only did the Fed stop talking about rate hikes, but Chair Powell also began openly talking about rate cuts in 2024.

After posting mixed gains overall in January, stocks surged in February and rose for the fourth straight month. While interest rates rose in February on lowered Fed rate cut expectations, an economic soft-landing became the prevailing narrative and accelerated the demand for stocks and market breadth widened encouragingly, to include small- and mid-cap stocks. The benchmark S&P 500 jumped 5.2% in February, closed above 5,000 for the first time and set multiple record highs. The Dow closed above 39,000 for the first time and set multiple record highs as well, though it lagged overall with a 2.2% gain for the month. The tech-heavy Nasdaq led the charge gaining 6.1% for the month as the Magnificent 7 and large-cap growth stocks continued to lead and pushed its 12-month gain to 40.5%. The Russell 2000 surged 5.5% and the mid-cap S&P 400 rocketed 5.8%, with both closing in positive territory year-to-date. All the major US stock indexes hit new 52-week highs in February.

Overseas, developed market stocks jumped as well with the benchmark MSCI EAFE index gaining 4.0%; with lower inflation readings as well, the European Central Bank and Bank of England are also eying rate cuts in 2024. Emerging Markets, which have lagged for the year, gained 1.7% in February, and closed just shy of breakeven YTD.

The last two months of 2023, the market was overly optimistic in its rate cut optimism in terms of how many cuts and when the Fed would start, which helped fuel the late charge. However, as the economy continued to surprise on the upside and exceed expectations to start the year, including robust jobs data and continued unemployment below 4%, and inflation showing signs of stickiness in January, the market began lowering its 2024 Fed rate cut expectations closer in line with the Fed’s projection of three cuts by year end. The market has pushed out the first Fed rate cut expectation from March to June and total cuts from 6-7 to 3-4. As a result, interest rates rose across the yield curve, and was particularly negative for bonds in February, which fell 1.5% in February as measured by the Bloomberg Aggregate Bond index. The benchmark 10-year Treasury Note yield rose 0.26% to 4.25%. Bond yields and prices have an inverse relationship.

Remember, in 2022 the market priced in a recession for 2023 when the Fed began its aggressive rate hikes that March to fight high inflation. Last year, the market reversed those recession expectations as the economy continued to grow, inflation declined, and stocks rebounded sharply in 2023, especially November and December after a summer spell and the Fed pivot. However, that widely expected recession never came and now, while risks remain and the economy is anticipated to slow down, prevailing expectations are widespread for an economic soft-landing in 2024 as noted above.

March Update

Stocks in the US and overseas have largely continued higher in March and market breadth has widened further, with small- and mid-caps leading. The S&P 500 and mid-cap S&P 400 set new all-time highs the first week of March, while the Magnificent 7 has seen some easing from recent highs and the Dow has dipped slightly. The international benchmark MSCI EAFE index hit its highs for the year and Emerging Markets turned positive, while the MSCI World All-Cap index hit an all-time high.

Interest rates have eased to start March and the Bloomberg Aggregate Bond index is almost breakeven for the year.

Stocks in general are ahead of return expectations for the year particularly following four straight months of strong gains. Market volatility remains low, though a pullback or consolidation would be normal at some point. Nonetheless, we remain cautiously optimistic for 2024 with solid return expectations overall for both stocks and bonds. However, we anticipate more modest returns than last year, as the soft-landing scenario prevails.

With volatility, resolve is required, and we continue to encourage investors:

  • Remain well-diversified
  • Maintain discipline and patience
  • Focus on the long-term
  • Review your Risk Tolerance

Call your Nelson Advisor today at 800-345-7593 to discuss any concerns and review your portfolio.

~Your Nelson Securities Team    

*Past Performance is No Guarantee for Future Results