Current Market Observations

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Last week marked the second week of negative returns in the equity markets, albeit modestly negative, especially given the strong price rally we have seen thus far in 2024. Dow Jones Industrial Average fell –0.02%, The S&P 500 Index fell –0.13%, and the NASDAQ fell –0.70%. Equity markets sold off as two inflation reports (CPI (Consumer Price Index) and PPI (Producer Price Index)) showed numbers slightly higher than economists had predicted, leading investors to speculate that interest rates would remain higher for longer and that rate cuts were farther off than predicted as well. We at Valley National Financial Advisors have pointed to June 2024 as the earlier point at which the Fed would start to cut interest rates, and we are sticking with that projection. The 10-year U.S. Treasury bond yield rose 22 basis points last week to close at 4.31%.

U.S. Economy 

As mentioned above, two inflation reports showed that inflationary pressures are sticking around longer than economists thought. The U.S. CPI and U.S. PPI showed modest moves higher on a year-over-year basis, but the U.S. Core CPI continues to fall slowly but steadily. See Chart 1 below from Valley National Financial Advisors and Y Charts showing the inflationary trend in the above reports. While sticky inflation may seem like a problem, the path to the Fed’s 2% inflation target was never going to be linear; rather, it would be gradual and lumpy, and that is what we are seeing as higher interest rates continue to combat pandemic-related inflationary pressures. Fed Chairman Jay Powell and the FOMC will meet this week to determine interest rate policy for the next several months. We expect rates to remain unchanged, with the Fed Funds Rate at 5.50%. After the meeting, Chairman Powell’s press conference will give us some needed direction and timing on the future path of rates and potential cuts.

Policy and Politics 

Shockingly, Vladimir Putin was re-elected to a third term as President of Russia. In a media-staged election, Mr. Putin secured 78% of the vote and will be Russia’s leader until at least 2030. Sadly, we do not expect an end to the Ukraine/Russia War as Putin will regard this “victory” as proof that his war efforts are the correct path for Russia to be taking. Global turmoil and conflict continue in Israel and Haiti, with neither region showing a cessation in troubles. Lastly, the U.S. Senate will take up a bill that the U.S. House passed last week where the massively popular app TikTok must be sold off by Chinese company Byte Dance or risk being banned in the U.S. Lobbyists for TikTok and competitor Meta are pouring money into Washington as each tries to pressure Congress for action in either direction. 

What to Watch This Week 

  • Target Fed Funds (Upper Limit) released 3/20 current 5.50% 
  • U.S. Initial Claims for Unemployment Insurance week of March 16, released 3/21, prior 209,000. 
  • U.S. Existing Home Sales Monthly for Feb ’24, released 3/21, prior 4.00M 
  • 30-year Mortgage Rate for the week of March 21, released 3/21, prior 6.74% 

Our weekly objective in writing The Weekly Commentary is to inform and educate our readers about the markets, economy, and risks. Of the three, risk is most important to us as it is the hardest to quantify and use when adjusting investment portfolios. Lately, we have struggled to find serious market risks or continued economic growth. Important sectors of the economy are running nicely: consumer, banks, corporate EPS, and housing; all the while, labor remains healthy, with a national employment rate of 3.9%. We expect the Fed to remain on hold as inflation remains stubbornly sticky and is not yet at 2.00%. Watch the Fed and listen to Chair Powell’s message. Please contact your advisor at Valley National Financial Advisors with any questions. 

“Your Financial Choices” Radio

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Tune in Wednesday, 6 PM, “Your Financial Choices” on WDIY 88.1 FM. Laurie will be discussing: Inheriting Something?  What should you know?

Questions can be submitted to yourfinancialchoices.com before the live show. Recordings of past shows are available to listen to or download at yourfinancialchoices.com and wdiy.org.

Did you miss the last show, Listeners’ Tax Questions? Listen Here

The Numbers & “Heat Map”

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MARKET HEAT MAP

The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade key economic conditions that we believe are of particular importance to investors.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

VNFA NEWS

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Join us in welcoming Christopher Holland to the newly created Director of Research & Investments position!

Chris brings an extensive wealth of experience to our team, showcasing a remarkable career spanning over 25 years. Most recently, he dedicated his expertise to private market investing as a Senior Investment Professional with the Public-School Employee Retirement System. Chris has held distinguished roles, including Managing Director at Galt’s Gate and Senior Equity Analyst/Portfolio Manager at Delaware Funds by Macquarie. His contributions also extend to his time as a Municipal Credit Analyst at BlackRock. His impressive background reflects a consistent track record of successfully steering research and investment initiatives to fruition.

“Chris’s role will be instrumental in shaping our research initiatives and driving investment strategies, contributing significantly to the success and growth of VNFA.  His strategic acumen and proven accomplishments make him a valuable and timely addition to our investment team as we continue to navigate the ever-evolving landscape of the financial markets,” said William Henderson, Chief Investment Officer.

Anchored in the Lehigh Valley, Chris is a true Bethlehem native, born and raised. Beyond research and investments, he finds joy in skiing and working in his backyard vegetable garden. Chris is based out of our Bethlehem headquarters, and he can be reached at 610-868-9000 ext. 123 or cholland@valleynationalgroup.com.

VNFA in the COMMUNITY

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What a great evening of community connection and culinary delights! Thank you, LINC & Butterhead Kitchen, for allowing #TeamVNFA to collaborate on this exceptional community cooking class. LINC’s mission, centered around fostering a sense of welcome and building a supportive community for newcomers, aligns seamlessly with VNFA’s values. We take immense pride in contributing to this remarkable mission, which is dedicated to assisting individuals in settling into the community and flourishing.   

To learn more about LINC, visit Learning | Inclusion | Networking | Community.

Current Market Observations

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Equity markets were down last week, with all three major indexes reporting negative results. The S&P 500 Index fell –0.26%, the NASDAQ -1.17%, and the Dow Jones Industrial Average –0.93%. Fixed income markets saw lower yields last week as Fed Chair Powell gave an indication that rate cuts are “not far” off. Also impacting rates was the February jobs number, which showed lower wage pressure and revisions lower than the hot January jobs numbers. A big test for bond markets will come later this week when the CPI (Consumer Price Index) and PPI (Producer Price Index) numbers are reported for January. The 10-year U.S. Treasury bond yield fell 9.4 basis points last week to close at 4.09%.

U.S. Economy 

The February jobs report from Friday indicates job growth remains healthy, with nonfarm payrolls increasing 275,000 jobs, above consensus expectations for a rise of 198,000. This follows a downwardly revised 229,000 increase in January. Despite encouraging headline figures, prior estimates of job expansion in December and January were revised down to 167,000 jobs. The unemployment rate rose to a two-year high of 3.9%, and wage momentum cooled, indicating less inflationary pressure.

Policy and Politics 

During testimony last week, Fed Chair Powell indicated a softening of banking rules, specifically stating that proposed new rules to force lenders to strengthen their balance sheets (Basel III) would be scaled back or reworked. This comes in response to complaints from industry leaders about the overall cost and economic impact of enacting the original proposed changes. 

What to Watch This Week 

  • U.S. Consumer Price Index released 3/12/24, prior +0.3% 
  • U.S. Retail Sales released 3/14/24, prior –0.8% 
  • U.S. Producer Price Index released 3/14/24, prior +0.3% 
  • U.S. Consumer Sentiment (prelim) released 3/14/24, prior 76.9% 

In the current market landscape, the stock market and the broader economy demonstrate robust performance buoyed by several factors. Healthy corporate earnings bolstered by resilient consumer spending, economic productivity gains, and increased business technology spending are driving equities to continued new highs. Additionally, recent data pointing to a soft landing for the economy continues to provide a supportive backdrop, instilling confidence among investors. With a healthy labor market combined with the prospects for lower rates later this year, the overall economic and market outlook remains optimistic. It should provide help to the housing market. However, prudent risk management and close monitoring of potential inflationary pressures, geopolitical tensions, and trade disputes remain essential. Overall, the positive momentum in both the stock market and the economy reflects a favorable environment for investors.

In navigating volatile markets, it is important to maintain a long-term perspective grounded in the fundamentals of the economy and industry-leading companies. While short-term fluctuations and unforeseen challenges may arise, staying committed to well-thought-out investment strategies is key. As we move forward, let us remain optimistic about the future and recognize that overly emotional markets often pave the way for opportunities and growth.

The Numbers & “Heat Map”

Posted on by

MARKET HEAT MAP

The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade key economic conditions that we believe are of particular importance to investors.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.