Market Commentary - March 2024

Monthly Update

The first quarter finished up in solid fashion for the broad stock market. I say ‘broad’ because we’ve finally gotten buying interest in sectors other than just technology and anything AI related. To this, the 3.1% March increase in the S&P 500 was nearly matched by the 3.4% rally in the Russell 2000, which is made up of small cap stocks[1]. The mid-caps did the best as the S&P Midcap 400 index saw a gain of 5.4%[2]. Interestingly, the tech heavy NASDAQ actually underperformed, seeing ‘just’ a 1.8% increase, though still up 9% in the year to date[3]. The stock market gains were geographically broad based too as the Euro STOXX 600 saw a 3.7% increase and the Nikkei 225 was up by 3.1%[4]. Chinese stocks lagged but after a nice rebound in February.

Interest rates were volatile intra month but ended March little changed from how they started. We saw a slew of central bank meetings both in developed and developing countries with the overriding theme very mixed. Japan exited negative interest rate policy finally while also ending its yield curve control and equity ETF purchases. On the other hand, the Swiss National Bank surprisingly cut interest rates to a still very low 1.50% and we got some modest rate reductions out of the Mexican and Brazilian central banks, with both still having very positive real interest rates[5]. The European Central Bank kept rates unchanged as expected but seems itching to cut in June based on commentary from many of their members. The Bank of England seems on pause as they are grappling with still high inflation but still hope to cut at some point this year.

Regarding the Federal Reserve, they conducted their FOMC meeting on March 20th. We received a statement and economic projections from them, followed by a press conference with Chair Jay Powell. We ended that day with the impression that the Fed was getting ready to cut interest rates at their June meeting and rates fell in response to that belief. However, the sentiment shifted when voting members Raphael Bostic from the Atlanta Fed and Fed Governor Chris Waller expressed that they are in no hurry to cut rates. This was then followed by a Q&A that Powell himself had on Good Friday that seemed to hint he’s in no rush either. The hesitancy stems from persistent, sticky inflation. There are indications that goods price inflation may be bottoming out, accompanied by higher commodity prices, while service inflation remains persistent but is expected to moderate, and economic activity in the aggregate is hanging in there as is the labor market. As of this writing, interest rates across the US yield curve are now higher than where they were right before that Fed get together.

Being a central banker in the US is challenging due to the dual mandates of maintaining stable prices and achieving maximum employment, which can sometimes conflict. Most other central banks have a sole inflation focus. I say this because the economic data in the US has more cross currents than I believe I’ve ever seen.

With the housing market, the pace of existing home transactions is near the lowest since the mid 1990’s but the building of new homes has been more robust because of the needed supply. That lack of supply of existing homes, along with affordability challenges, is why this new supply is so desperately needed. Looking big picture and over a multi year time frame, the housing market needs more baby boomers to downsize in order to provide more choices, especially for first time buyers who are most negatively affected by the current state of the housing market.

US manufacturing, along with global activity, has been in a recession since the summer of 2022, but there are hopes for a bottoming as the ISM manufacturing index got above 50 in March for the first time since September 2022. Global trade has certainly been soft. The US consumer is very bifurcated. Not only do we see people continuing to spend more on services than goods, the higher income spender is spending more freely than the lower to middle income consumer that has been much more focused on value and being ‘choiceful’ in their spending decisions as said by the CFO of Walmart. The cumulative rise in inflation of almost 20% over the past few years impacts them the most.

Government spending and tax incentives have given a lift to those building manufacturing facilities to produce semiconductors, EV batteries and other renewable priorities. The numbers are big and helping regionally, the Midwest in particular. Spending on the construction of manufacturing plants in the US has more than doubled since the end of 2021.

Overseas the economic picture is not much clearer. China’s economy has clearly seen a slowing in its pace of growth but recent data point to a bottoming. Japan’s economy is officially in recession, albeit slightly, but also with hopes as the Nikkei is finally above its 1989 peak. The Germany economy is also in a technical recession and growth is very slow in the UK and France. On the other hand, India’s economy has been rocking and rolling, growing by 8.4% in Q4 and growth too in some Southeast Asian countries like Singapore and Indonesia has been healthy[6].

Shifting back to the stock market, March saw a needed broadening out and you didn’t have to say AI in your conference call in order to see a rally. Sectors including industrials, healthcare, retail, and transportation, to name a few, also saw nice gains in the month. And as stated, small and mid-cap stocks rallied too. What the broad rally also brought us was exuberance when it comes to stock market sentiment according to some key metrics that I watch. From a contrarian standpoint when the mood gets extremely bullish, many times a rest and/or reversal takes place in the markets. This is nothing that impacts our long term focused clients but something to heed in the short term.

I want to finish the market and economic discussion by pointing out the 5.5% rally in the CRB Commodity index in March[7]. This complicates the Fed’s job, along with other central banks, as it keeps alive the inflation threat. WTI crude oil was higher by 7.4%, copper by 4.2%, the CRB food index (which includes everything from corn, soybeans, to cocoa and sugar) by 6.7%, gold by 7.9% and silver by 8.9%[8]. Gold in particular is at an all-time record high, with its history dating back 5000 years. Cocoa has gone parabolic and up by 265% y/o/y[9]. For those that drive, the average gallon of gasoline rose 6.2% in March, according to AAA. We continue to remain constructive on commodities generally and gold, silver agriculture and energy especially.

Conclusion

After ending 2023 at about the same level as the end of 2021, stocks have broken out to the upside so far this year and are finally showing some gains over a multi-year time frame. Since year end 2021 and not including dividends, the S&P 500 is up 10% thru Q1 2024[10]. While I talked about the broadening out of the market, a lot of the rally over the past year was driven by AI excitement, particularly in the semi space, the providers of the key picks and shovels for large language models and needed massive computer power. We now need to see this excitement translate to profitability and productivity gains for the users of generative AI.

We still believe that interest rates will remain higher for a while which provides great opportunities for fixed income investors but also a more challenging backdrop for borrowers, particularly those in commercial real estate that is highly interest rate sensitive and will have a few difficult years for those who have loans coming due this year and next. After a lengthy period of about 15 years of extraordinarily low and artificially suppressed interest rates, the new higher rate backdrop continues to evolve, and the transition is certainly bumpy and still could be for a period. It is not that interest rates are high in absolute terms, it is that they are high after 15 years of very low.

We acknowledge that we live in a different macro world than enjoyed in the 15 years pre-Covid and need to have eyes wide open on how things play out from here. Whatever comes our way in this very tricky investing landscape, it remains vital that investors have adequate short-term liquidity over the next 2-3 years. Knowing that period is covered can help separate the balance of one’s portfolio from the ups and downs of the markets. Time horizon is always crucial and is always the best friend of any investor. We are not just in the asset management business but also in the risk management business and always believe that by watching our back and focusing on the risks, the upside should take care of itself.

Disclaimer

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The market and economic data is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this report has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The Stoxx Europe 600 index also called the STOXX 600 is an indicator of the performance of the European stock market. It measures the performance of large mid and small-cap companies across 17 countries in Europe. The number of constituents is fixed at 600.

The Hang Seng Index is a freefloat-adjusted market-capitalization-weighted stock-market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. These 82 constituent companies represent about 58% of the capitalization of the Hong Kong Stock Exchange.

Nothing in this material should be construed as investment advice offered by Bleakley Financial Group, LLC or Peter Boockvar. This market update is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction or investment strategy. No chart, graph, or other figure provided should be used to determine which securities to buy, sell or hold. No representation is made concerning the appropriateness of any particular investment, security, portfolio of securities, transaction or investment strategy. You should speak with your own financial professional before making any investment decisions.

Past performance is not indicative of future results. Neither Bleakley Financial Group, LLC nor Peter Boockvar guarantees any specific outcome or profit. These disclosures cannot and do not list every conceivable factor that may affect the results of any investment or investment strategy. Risks will arise, and an investor must be willing and able to accept those risks, including the loss of principal.

Certain statements contained herein are statements of future expectations and other forward looking statements that are based on opinions and assumptions that involve known and unknown risks and uncertainties that would cause actual results, performance or events to differ materially from those expressed or implied in such statements.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

Precious metal investing involves greater fluctuation and potential for losses.

The information presented is for educational and informational purposes only and is not intended as a recommendation or specific advice. Cryptocurrency and cryptocurrency-related products can be volatile, are highly speculative and involve significant risks including: liquidity, pricing, regulatory, cybersecurity risk, and loss of principal. A cryptocurrency fund may trade at a significant premium to Net Asset Value (NAV). Cryptocurrencies are not legal tender and are not government backed. Cryptocurrencies are non-traditional investments, resulting in a different tax treatment than currency. Federal, state or foreign governments may restrict the use and exchange of cryptocurrency. The use and exchange of cryptocurrency may also be restricted or halted permanently as regulatory developments continue, and regulations are subject to change at any time. Cryptocurrency exchanges may stop operating or permanently shut down due to fraud, technical glitches, hackers, malware, or bankruptcy. ​

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[1] Bloomberg

[2] Bloomberg

[3] Bloomberg

[4] Bloomberg

[5] Bloomberg

[6] Bloomberg

[7] Bloomberg

[8] Bloomberg

[9] Bloomberg

[10] Bloomberg