Weekly Market Performance — March 8, 2024

LPL Research provides its Weekly Market Performance for the week of March 4, 2024. The week witnessed another record high for the broader market. Small caps continue to lead as investors believe the economy will be supportive for future earnings. Gold prices continued to move higher in both dollar and major currencies amid global central bank purchases. Last month, the unemployment rate increased to 3.9% as the economy created more jobs as expected.

Stock Index Performance

S&P 500 Index Sectors

Fixed Income and Commodities

Source: LPL Research, Bloomberg 03/08/24
Disclosures: Indexes are unmanaged and cannot be invested in directly.

U.S. and International Equities

Markets Mixed: The prospect of a soft-landing economic scenario helped propel the S&P 500 Index to another all-time high midweek as investors took profits on Friday. The large cap bellwether finished higher for the 17th time in the last 19 weeks. Small caps continue to perform well amid some concerns with asset class earnings quality. Better-than-expected earnings and continued momentum in artificial intelligence (AI) have kept buyers engaged.

Election Season and the Markets: The lack of any surprises on Super Tuesday likely solidified another Biden and Trump election rematch this November. Since 1952, election-year lows have been set 72% of the time during the first quarter, with March having the highest frequency.

In terms of annual election-year returns, the S&P 500 Index has generated an average return of 7.3% during all election years since 1952. However, when election years are positive, as they tend to be (83% of the time), the average return jumps to 12.2%. Moreover, during a reelection year such as 2024, or with a Democrat incumbent president, the S&P 500 Index has posted average annual returns of 12.8% and 11.4%, respectively.

Sentiment Bullish: According to the most recent American Association of Individual Investors (AAII) survey, investor bullish sentiment increased from 46% to 51% this week. Neutral investor sentiment declined, while bearish sentiment increased a fraction. The percent of bullish investors remains well above the long-term historical average of 37.5%

Fixed Income Higher: The Bloomberg Aggregate Bond Index finished higher for the third straight week, reversing three consecutive down weeks as rates rose following the uptick in inflation in January. High-yields bonds finished higher.

The Federal Open Market Committee (FOMC) faces a challenging decision in 2024 as it is no longer a question of ‘if,’ but rather ‘when’ interest rate cuts will occur. The market expects to not cut rates at their upcoming March meeting but may instead cut rates in June.

Since the Federal Reserve’s (Fed) meeting in January, surprisingly elevated inflation readings have cast a shadow of doubt over expectations for a change in monetary policy. Premature rate cuts from the Fed could risk reigniting inflation, which they have been diligently trying to bring down to 2%. This being said, even if rate cuts get priced out further, we expect fixed income to still provide diversification benefits to investors.

Commodities Mixed: West Texas Intermediate and natural gas prices declined. Amid last week’s natural gas rally, concerns exist over high levels of supply for the commodity. That said, weather conditions still remain a wildcard for the commodity as winter winds down.

Gold prices have continued to edge higher in dollar terms, but in major currencies as well. Global central banks have been the primary buyers of gold for a couple of years, particularly as the People’s Bank of China (PBOC) has continued its transition away from the dollar and U.S. Treasuries, while other central banks purchase gold as a hedge against geopolitical tensions and economic concerns.

Economic Weekly Roundup

Fed Talk: Fed Chair Jerome Powell stated this week that the Central Bank was "not far" from gaining the confidence it needs in falling inflation to begin cutting interest rates. That being said, Powell stated that policymakers remain attentive to the risks that inflation poses and don’t want to ease up too quickly. Moreover, Powell noted that lowering rates too quickly increases the risk of losing the battle against inflation and likely having to raise rates further while waiting too long poses a risk to economic growth.

ISM Services: Purchasing managers in the services industries reported growth in February. Prices grew at a slower pace in February, while business leaders reported no impact from Red Sea shipping disruptions. Most encouraging is businesses in the construction sector reported materials levels have returned to pre-COVID levels. Lastly, employers were cautious about hiring as economic concerns were top of mind.

Purchasing managers were generally upbeat last month. Business was good; inflation pressures were under control and firms prepared for a potential slowdown by streamlining inventories. This report indicates employers should continue to grow payrolls, but likely at a slower pace.

German Manufacturing Orders: German manufacturing orders declined by more than expected in January, offsetting much of December’s increase. The nation’s report increases the risk of recession, placing pressure on the European Central Bank to cut rates.

Weekly and Monthly Employment Report: Initial and continuing claims came in above analysts’ expectations as initial claims matched last week’s reading. LPL Research continues to believe the labor market is expected to further loosen over the coming months as companies respond to slowing demand, partly driven by the lagged effects of tighter monetary policy.

Last month, the unemployment rate increased to 3.9%. The economy created 75K more jobs than expected, while downward revisions to prior months and tepid wage increases were well received by markets.

The Week Ahead

The following economic data is slated for the week ahead:

• Tuesday: NFIB Small Business Index (Feb), February Consumer Price Index, hourly earnings (Feb), average workweek (Feb), Treasury Budget (Feb)
• Thursday: Initial and continuing unemployment claims, Producer Price Index (Feb), retail sales (Feb), business inventories (Feb)
• Friday: Export and import price index (Feb), capacity utilization (Feb), industrial production (Feb), manufacturing production (Feb), Michigan sentiment (Mar)