Market Recap – March 15, 2024

Summary:

  • Weekly Returns (Friday Open – Thursday Close) & YTD Returns*: [1]

The big news this week was hotter than expected inflation data which led to an increase in long-term interest rates. US large cap stock returns were mixed as continued earnings strength was offset by higher inflation data. Meanwhile, interest rate sensitive assets such as small cap stocks and US bonds plummeted as longer-term interest rates rose. [2]

  • Inflation Rate: Inflation is showing itself to be sticky with the Consumer Price Index (CPI) rising by 3.2% year-over-year and the core CPI, which excludes volatile food and energy prices, climbing by 3.8% over the same period. This represents a 0.4% increase for both CPI and core CPI on a month-over-month basis. [3]
  • Dollar Tree Slashes Store Count: Dollar Tree unexpectedly reported a loss for the fourth quarter and announced the closure of approximately 1,000 stores across the United States. Dollar Tree has faced challenges integrating Family Dollar, a discount retail chain Dollar Tree acquired in 2015 for over $8 billion. [4]
  • Joe Biden’s $7.3 Trillion Budget Proposal: On Monday, President Joe Biden unveiled a federal budget proposal for the fiscal year 2025, amounting to $7.3 trillion in expenditures. This represents a 4.7% increase from the current budget, with provisions to enhance defense spending by 1% and elevate non-defense discretionary spending by 2.4%. [5]

Chart of the Week:

Economic Outlook:

  • Equity: We expect a broadening of stock market returns beyond the Magnificent 7 as corporate earnings continue to improve and recommend clients maintain diversified equity exposure.
  • Unemployment: We expect the unemployment rate to slowly trend upwards throughout 2024 with a potential increase in layoffs as heavily indebted firms struggle to refinance their debt at higher interest rates. [5]
  • Inflation: We expect a second, less severe, round of inflation to begin in 2024. We see inflation staying consistently above the Fed’s target of 2% in the coming years, structurally bound between 2-5%.
  • Short-Term Interest Rates: We put the odds of any rate cut before June of 2024 at less than 25%. Goods inflation should reaccelerate as services inflation moderates, leading to potential rate cuts in the second half of 2024.
  • Long-Term Interest Rates: We expect longer-term interest rates to stay elevated and relatively volatile, which is consistent with sticky inflation. Longer-term interest rates have a high correlation to GDP growth and inflation expectations.

*US Small Cap Stocks is Russell 2000

* US Bond Market is Bloomberg Aggregate

*International Stocks is MSCI ACWI ex-US Index

*Weekly Returns is March 7th, 2024-March 14th, 2024

*YTD is Jan 2nd, 2024-March 14th, 2024

By: Nick Colletta, CFA, CAIA

Sources:

Bridge Advisory LLC Disclosures

Bridge Advisory, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Investment Advisory Services offered through Bridge Advisory, LLC. Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type. Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Information herein has been obtained from sources believed to be reliable, but Bridge Advisory, LLC. does not warrant its completeness or accuracy; opinions and estimates constitute our judgment as of this date and are subject to change without notice. This newsletter expresses the views of the authors as of the date indicated and such views are subject to change without notice.

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