Weekly Market Performance — March 22, 2024

LPL Research provides its Weekly Market Performance for the week of March 18, 2024. It was a strong week for U.S. equity markets as the S&P 500 eclipsed new all-time highs for the 20^th time this year following a fairly upbeat Federal Reserve (Fed) assessment on Wednesday. The FOMC statement and the press conference that followed were an indication to the markets that the Fed remains on track to deliver three rate cuts this year and alleviated some concerns that policy would need to deviate from its intended path after the recent uptick in headline inflation. Bond markets were a bit more skeptical of the policy outlook, however, as yields across the curve were only modestly lower on the week despite the Fed’s reassurance of lower rates.      

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 03/22/24
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

Markets: The S&P 500 Index moved solidly higher this week as the Fed maintained the status quo, encouraging market participants to continue to embrace risk assets. As of 2 P.M. ET on Friday, the 2.4% gain for the index was its best weekly performance since mid-December. International equities lagged the U.S. in dollar terms but moved higher on the week. The Bank of Japan’s historic, and dovish, rate hike on Tuesday helped drive the Nikkei more than 5% higher in yen terms.

This week’s gains were paced by two key growth sectors: communication services and technology. Communication services leadership was, perhaps predictably, driven by strength in top constituents Google (GOOG/L) and Meta (META) amid ongoing enthusiasm surrounding artificial intelligence (AI). But surprisingly, technology gains came despite weakness in Apple shares (AAPL) after the Justice Department brought an antitrust suit against the company. Among S&P 500 sectors, only real estate was down on the week.

The improved economic and earnings outlooks along with the end of the Fed’s rate-hiking campaign as inflation pressures eased have powered this bull market to a return of about 50% since it began in October of 2022, with 10% coming in 2024. Though valuations are elevated, fundamentals have been good enough to preserve the market’s momentum and keep the uptrend intact. 

Fixed Income: The Bloomberg Aggregate Bond Index finished the week higher after the Fed kept rate cuts on the table for 2024. Corporate credit markets rallied on the news as well, but further price appreciation may be limited given the already tight spreads, particularly within the high yield market.

A collaborative take on the changes to the Fed’s rate cut expectations would be that the bond market would not like the news from this week’s Fed meeting. The Fed’s dot plot still showed three cuts this year but, potentially, fewer rate cuts in 2025 and 2026. Additionally, and importantly, the Fed raised its estimate of the neutral fed funds rate from 2.5% to 2.6%, which means we’re not likely going back to very low interest rates. However, going into the meeting, the bond market was priced for worse news, particularly as it relates to the neutral rate. With the Fed likely determined to stay the course on rate cuts, even in the face of inflation still above target, the bond market’s rally this week was likely a sigh of relief that rate cuts are likely still happening this year, which has historically been a tailwind to bond prices. With the rate cycle seemingly turning, it’s likely the cycle highs in rates have been made. 

Commodities: Gold captured most of the commodity market spotlight. While the rally slowed a bit this week, the yellow metal’s breakout above key resistance at $2,075 remains a major technical development. Macro conditions remain supportive for gold, including elevated geopolitical tensions and potentially limited upside risk to interest rates and the dollar due to the eventual rate cuts from the Fed. Global central bank demand remains another key factor to gold’s rally and has shown little signs of slowing down. The deviation between gold prices and gold holdings in ETFs appears stretched, raising the probability of a potential rebound in demand from gold-related ETFs. 

Oil pulled back modestly but held above $80 a barrel. The extension of OPEC+ production cuts into the second quarter has helped balance out the market and offset record U.S. production. Stockpile drawdowns in the U.S. over the last few weeks have further supported the supply side of the equation. The prospect for global central bank easing and the potential for Chinese demand to return have supported the demand outlook. The futures curve is reflecting a tighter oil market as well, as the curve remains in backwardation. Finally, Ukrainian-led drone strikes on Russian refiners have added to the embedded risk premium in oil, which is further supported by ongoing tensions in the Middle East.

Economic Weekly Highlights

The Bank of Japan (BOJ) kicked off a busy week of policy meetings for central bankers on Tuesday. As expected, the BOJ finally ended the era of negative interest rates after raising their policy rate from -0.1% to a new range of 0.0% to 0.1%. The central bank also halted exchange-traded fund purchases and abandoned their yield curve control program, while noting they would continue to buy long-term sovereign debt as needed. The policy moves were widely expected but lacked any hawkish follow-through commentary as the central bank stressed the “importance of maintaining an accommodative environment in mind.” In buy the rumor, sell the news fashion, the yen weakened after the announcement, sending the dollar/yen higher.

The Federal Reserve left rates unchanged as expected. Policymakers also penciled in three quarter-point cuts this year, but things could change depending on the persistence of services inflation or any emerging risks to growth. Rates may still stay higher for longer. The FOMC seems inclined to keep rates a bit higher in 2025 than originally forecasted. The Fed did not change its headline inflation projections for 2024 but boosted GDP growth expectations from 1.4% to 2.1%. Inflation pressures are cooling and the path toward the 2% goal will be bumpy. 

The Week Ahead

The following economic data is slated for the week ahead:

• Monday: New Home Sales (Feb), Dallas Fed Manufacturing Activity (Mar) 
• Tuesday: Durable Goods Orders (Feb), Philly Fed Non-Manufacturing (Mar), FHFA House, Price index (Jan), Conf. Board Consumer Confidence (Mar), Richmond Fed Business, Conditions (Mar), Dallas Fed Services Activity (Mar)
• Wednesday: MBA Mortgage Applications (Mar)
• Thursday: GDP (Q4 3^rd release), Personal Consumption (Q4 3^rd release), Core PCE (Q4 3^rd release), Initial and continuing unemployment claims, Chicago PMI (Mar), Pending Home Sales (Feb), Michigan Sentiment (Mar final), KC Fed Manufacturing, Activity (Mar) 
• Friday: Holiday