Category Archives: The Markets

Current Market Observations

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Last week, the S&P 500 and NASDAQ surged to new record highs, continuing their upward trajectory. The NASDAQ led the charge with a strong 3.3% total return, surpassing the S&P 500, which posted a 1.6% gain, while the Dow lagged with a slight decline of 0.5%. Positive U.S. inflation data and highlights from the June FOMC meeting bolstered investor confidence, driving upward market momentum. However, an equally weighted version of the S&P 500 underperformed its capitalization-weighted index by 215 basis points, indicating a more narrowly focused market. Information technology was the standout sector of the week, surging 6.4%, whereas energy and financials both experienced declines of over 2%. Last week, the markets saw 10-year U.S. Treasury closed at 4.20%, a stunning 23 basis points lower than the previous week.

U.S. & Global Economy 

Last week, inflation data showed much-welcomed lower readings. See Chart 1 below from Valley National Financial Advisors & Y Charts. The consumer price index (CPI) remained unchanged in May, the first time in nearly two years. Core prices, excluding food and energy, increased by 0.2%, slightly below expectations and hitting a seven-month low. Year-over-year core inflation dropped to 3.4%, the lowest since April 2021.

Similarly, producer price index (PPI) inflation fell unexpectedly by 0.2% in May, halting five consecutive months of increases, and core PPI every year fell to 2.3%. Concurrently, import prices declined by 0.4%, the first drop in four months. However, concerns over economic health emerged as weekly jobless claims unexpectedly rose, with 242,000 Americans filing for unemployment, the highest in nearly a year, and continuing claims reaching 1.82 million, the third-highest level in the past year. Despite these developments, the Federal Reserve showed minimal reaction to the benign inflation data, maintaining its stance after its policy meeting and projecting a slight increase in core PCE inflation expectations for 2024. While leaving interest rates unchanged as anticipated, Fed officials revised their median forecast for the federal funds rate to 5.1% by the end of 2024, suggesting a single rate cut later in the year despite acknowledging some progress on inflation. 

Policy and Politics 

President Biden is behind former President Trump by approximately one percentage point in national polls and about two percentage points in Pennsylvania, a critical swing state crucial for securing the electoral vote. Prediction markets suggest an even chance between the two candidates. 

On Friday, President Vladimir Putin stated that Russia would cease the war in Ukraine only if Kyiv abandoned its NATO aspirations and ceded control of four disputed provinces to Moscow. Kyiv promptly dismissed these demands as akin to surrender. 

After the French far-right won a significant victory in the European elections, President Macron dissolved the lower chamber of the French Parliament and scheduled legislative elections for June 30 and July 7. This move sparked a notable sell-off, with the index that tracks large-cap European stocks dropping 2.4% for the week.    

Economic Numbers to Watch This Week 

  • U.S. Empire State manufacturing survey for June 2024, prior –15.6%. 
  • U.S. U.S. retail sales for May 2024, prior 0.0%. 
  • U.S. Home Builder confidence index for June 2024, prior 45. 
  • U.S. Housing starts for May 2024, prior 1.36 million. 
  • U.S. Philadelphia Fed manufacturing survey for June 2024, prior 4.5. 
  • U.S. Existing home sales for May 2024, prior 4.14 million. 
  • U.S. Leading economic indicators for May 2024, prior –0.6%. 

We are looking for signs that the market’s strength is broadening beyond the dominant tech giants that have been leading the charge. We need consistent market broadening for equity indexes to continue their move higher. Anticipated rate cuts later this year are expected to ease financial pressures on smaller capitalization companies struggling with higher interest rates. We applaud the Fed for its efforts in lowering inflation thus far and appreciate its commitment to a 2% inflation target. Higher interest rates have impacted inflation, yet the economy remains comfortably strong across many sectors. It is also encouraging to see the World Bank raise its forecast for global economic growth in 2024, partly due to improving conditions in the U.S. The bottom line is that there are plenty of reasons for investors to feel optimistic. Please contact your advisor at Valley National Financial Advisors with any questions. 

Current Market Observations

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For the week of May 10th, the Dow Jones Industrial Average rose 2.2%, the S&P 500 Index rose 1.9%, and the NASDAQ rose 1.2%. Utilities were the best-performing sector for the week (+4.1%), while consumer discretionary was the worst-performing sector (+0.2%). The labor market experienced a minor setback last week, as weekly unemployment claims rose to 231,000 from 209,000 the prior week. This follows the unexpectedly weak non-farm payroll growth and unemployment rate reported for April. Readings like this will hopefully support the Federal Reserve in commencing interest rate cuts this summer. The 10-year U.S. Treasury closed the week at 4.50%, unchanged from the previous week.  

U.S. & Global Economy 

Last week was quiet on the U.S. economic data front. The most notable data points for the week were the weaker-than-anticipated jobless claims number reported on Thursday and Friday’s preliminary reading of consumer sentiment for May, which was weaker than expected. Later this week, all eyes will be on a fresh batch of inflation numbers scheduled to be reported. The Producer Price Index will be reported on Tuesday, with the Consumer Price Index set to be reported on Wednesday. We note below why the data will hang heavily on the Biden administration and their reelection hopes.  

 Policy and Politics 

We are encouraged to see Israel-Palestine ceasefire talks help remove risk premium in oil, with prices dropping below the $80 mark. However, there seems to be little real action in negotiations to end this regional conflict. This comes as the Russia-Ukraine war has seen an uptick in intensity by Russia as foreign aid to Ukraine has been slow to move.  

We have shown in the past that regardless of which party is in the White House, stock markets rally when the economy is growing and doing well. However, in elections, data matters, and the inflation problem continues in our economy, with the final path to 2% inflation continuing to be difficult to attain. See Chart 1 below from Dan Clifton at Strategas and the Wall Street Journal, showing the average annual CPI (Consumer Price Index) Inflation during the past eight Presidential first terms. Other President Carter had a higher reading. While it is fair to say the COVID-19 pandemic wreaked havoc on inflation, legislative and administration actions during President Biden’s first term pumped $7.2 trillion into the economy, eventually creating strong demand for goods and services. The inflation story will become more important as we move closer to November.  

Economic Numbers to Watch This Week 

  • U.S. Producer Price Index YoY (Year Over Year) for April 2024, prior 2.09% 
  • U.S. Core Producer Price Index YoY for April 2024, prior 2.37% 
  • U.S. Consumer Price Index YoY for April 2024, prior to 3.48% 
  • U.S. Core Consumer Price Index YoY for April 2024, prior to 3.80% 
  • U.S. Initial Claims for Unemployment Insurance for the week of May 11, 2024, prior 231,000 

Despite the potential for volatility in the coming months stemming from uncertainties around the Federal Reserve’s interest rate outlook and looming concerns over the U.S. presidential elections, market gains continue to be buoyed by the upward trend in corporate earnings. 90% of S&P 500 companies have reported first-quarter earnings, and the results have thus far exceeded analysts’ expectations by 8.5%. According to FactSet, the Wall Street analysts lifted their earnings-per-share estimates for second-quarter results by 0.7%. Remember, when companies make money, they make capital expenditures, pay dividends, buy back stock, and hire employees. Follow the data but proceed cautiously. Please contact your advisor at Valley National Financial Advisors with any questions.  

Current Market Observations

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For the week, the Dow Jones Industrial Average rose 1.1%, the S&P 500 Index rose 0.6%, and the NASDAQ rose 1.4%. Utilities were the best-performing sector for the week (+3.4%), while energy was the worst-performing sector (-3.3%). Following Wednesday’s FOMC decision to leave rates unchanged, markets felt relieved that the Fed indicated it is not currently considering raising rates. Chair Powell described the current monetary policy as appropriate for handling appropriate scenarios. Overall, it is reassuring to see companies delivering robust earnings, with an impressive 79% surpassing analysts’ projections, resulting in an average upside surprise of almost 9%. The 10-year U.S. Treasury closed the week at 4.50%, a stunning 17 basis points lower than the previous week, showing that traders are finally accepting the next move the Fed will be to lower rates. 

U.S. & Global Economy 

Certainly, all investors know we have a U.S. presidential election in November of this year. It is normal to have investor anxiety around events like this. Still, the markets are more efficient than investors, and the markets seem to understand that either outcome in November is a known commodity one way or another. Major elections and changes to interest rates can be two of the most unsettling things investors face. However, through presidents from both parties and countless interest-rate changes, the stock market has been resilient and has taken these changes in stride. See Chart 1 from Hartford, Morningstar, and the Federal Reserve Bank, which shows the growth in the S&P 500 and the Fed Funds Rate over the past 60+ years and multiple changes in administration showing the growth in the S&P 500 and the Fed Funds Rate over the past 60+ years and multiple changes in  administrations. 

Policy and Politics 

Last week, Israel stated their refusal to agree to Hamas’ demands for ending the conflict in Gaza, as both sides continue to exchange accusations amidst ongoing ceasefire negotiations, which have yet to show considerable progress. On Friday, the Russia-Ukraine conflict entered its 800th day, marking another significant milestone in the prolonged battle, which shows no immediate signs of ending. 

Economic Numbers to Watch This Week 

  • U.S. Consumer Credit for March 2024 prior $14.1 billion 
  • U.S. Wholesale inventories for March 2024 prior 0.5% 
  • U.S. Initial Claims for Unemployment Insurance for the Week of May 4th, 2024, prior 208,000 
  • U.S. Consumer sentiment (prelim) for May 2024, prior 77.2 
  • U.S. Monthly U.S. federal budget, April 2024 -$236 billion 

Markets do not move in a straight line. After five consecutive monthly gains, markets moved lower in April, with the S&P 500 down by 4.2%. Despite moderation in the first quarter of GDP (Gross Domestic Product) and a slight cooling in job growth for the month of April, we continue to see the U.S. economy on solid footing. It is promising to see earnings growth and performance leadership broadening beyond the popular mega-cap tech stocks. This builds a sturdy base for the market to continue to move higher. Please contact your advisor at Valley National Financial Advisors with any questions. 

Current Market Observations

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Amidst a flurry of earnings reports, the release of the first-quarter GDP, and updates on inflation, investors endured a week of volatility. Despite this, stocks rebounded with tech sector strength, buoyed by robust corporate profits and steady economic growth, albeit at a slower pace. For the week, the Dow Jones Industrial Average rose 0.7%, the S&P 500 Index rose 2.7%, and the NASDAQ rose 4.2%. Information technology was the best-performing sector for the week (+5.1%), while energy was the worst-performing sector (+0.7%).  This week, 37% of S&P 500 companies reported quarterly earnings, including Magnificent Seven tech stocks, including Google, Meta (Facebook), Microsoft, and Tesla. About one-third of the 229 companies reported exceeded sales expectations, while two-thirds beat earnings per share (EPS) estimates, with an average surprise of 9%. GDP growth slowdown tempered by resilient domestic demand and stagnant inflation are likely influencing the Fed’s cautious stance. Yields of U.S. government bonds rose for the fourth week in a row. The 10-year U.S. Treasury closed the week at 4.67%, five basis points higher than the previous week.

U.S. & Global Economy  

The resilience of the U.S. economy in the face of much higher interest rates has been one of the biggest surprises of the past two years. As recently as last year, most economists were expecting a recession, and we have seen anything but. See Chart 1 below from Valley National Financial Advisors and YCharts, which shows three common recession indicators: The Sahm Rule, The Misery Index, and the Probability of a U.S. Recession. While we understand it is a busy chart, the message is simple: the data is not telling us we are nearing a recession. The data is screaming growth ahead. 

The U.S. economy continues to grow healthy despite a dramatic rise in the Fed Funds Rate to its current range of 5.25% to 5.50%, a 23-year high. We understand the reasons for the recent interest rate hikes; inflation was over 9%, but it has fallen to just over 3%. The last move towards the Fed’s target of 2% is taking a bit longer than some expected. Still, the markets thus far have been correct in seeing the real message: growth is continuing, inflation is coming down, and corporate earnings have been steady.  

While the U.S. is clearly growing at a respectable clip, global growth is continuing elsewhere as well. According to the A.P. News, the International Monetary Fund (IMF) upgraded 2024’s global outlook, saying the world is headed toward the elusive “soft landing.” The IMF predicts a 3.2% global expansion this year and sees global inflation falling to 5.9% in 2024, down from 6.8% in 2023. We expect growth to continue at a measured pace and inflation to continue to fall at the same measured pace.  

Policy and Politics 

Local, national, and global unrest around wars and politics is stoking fear and uncertainty, which can permeate the markets. But the data – earnings, employment, housing – tells another story –expansion and growth. College campus unrest also continues throughout the U.S., but we have seen this story before, and with the school year coming to an end soon and students leaving campus, it is likely that these protests will dwindle down as well. However, the wars and unrest around the world will continue throughout the summer, and with the presidential election this fall, that will be anything but easy on the U.S. 

Economic Numbers to Watch This Week 

  • Target Fed Funds Rate announced, current 5.50% 
  • U.S. Job Openings Non-farm for March ‘24, prior 8.756M 
  • U.S. Initial Claims for Unemployment Insurance for the Week of April 27, 2024, prior 207,000.
  • U.S. Labor Force Participation Rate for April 2024, prior to 62.7% 
  • U.S. Unemployment Rate for April 2024, prior to 3.8% 

As markets gear up for another wave of quarterly earnings releases, the week ahead holds some key events, including a U.S. Federal Reserve policy meeting and the eagerly awaited April jobs report. Investors are curious to see if April’s job growth matches March’s surprisingly strong increase. Against the backdrop of ongoing market ups and downs driven by inflation fears and economic data swings, tech stocks are lending some strength to the market, even as the broader economy shows signs of cooling off. All eyes will be on Apple and Amazon when they report their quarterly earnings this week. Please reach out to your advisor at Valley National Financial Advisors with any questions.

Current Market Observations

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With so much global unrest and uncertainty hanging over the markets and the Fed clearly on hold for a bit longer with rate cuts, risk assets needed a reason to sell off. We got that last week with Israel’s retaliatory strike on Iran. While the strike seemed limited in scope, the risk of further escalation now hangs over the markets. Oddly, U.S. Treasuries, which typically would rally during global unrest, sold off as the Fed’s position on rates outweighed the troubles in the Middle East. The 10-year U.S. Treasury closed the week at 4.62%, 12 basis points lower than the previous week.  

U.S. Economy 

Interest rates continue to rise as they have all year, and we believe the current elevated rates will remain at this level for quite some time for three simple reasons. First, the economy continues to surprise on the upside with steady growth and expansion. Second, the labor market remains strong, with an unemployment rate near a 50-year low of 3.8% (BLS – Bureau of Labor Statistics). Third, inflation has not reached the Fed’s 2% target and, conversely, could remain above their target for 2024. See Chart 1 below from Apollo showing potential paths for inflation into year-end 2024.  

Policy and Politics 

As the latest escalation settles down, we expect markets to follow suit and settle down as well, but further retaliation from either side would force a flight to safety and quality, and we would expect U.S. Treasuries to rally and yields to fall as a result, so stay tuned!  

In nationwide polls, President Biden and former President Trump are neck and neck. Still, Biden lags by approximately three percentage points in the crucial swing states that could determine the electoral victory. According to Prediction Markets, there is a 55% probability of a Democratic triumph. 

Economic Numbers to Watch This Week 

  • U.S. Durable Goods New Orders MoM for March 2024, prior 1.37% 
  • U.S. Real GDP (Gross Domestic Product) for 1st Quarter 2024, prior 3.4% 
  • U.S. claims for Unemployment Insurance for the week of April 20, 2024, prior to 212,000 
  • U.S. Core PCE (Personal Consumption Expenditures) Price Index YoY for March 2024, prior 2.78% 
  • U.S. PCE Price Index YoY for March 2024, prior 2.45% 
  • U.S. Index of Consumer Sentiment for April 2024, prior 77.90 

Following a strong stock market rally over the last six months, recent weeks have seen a softening trend. Market corrections are typical, and three main drivers of recent volatility have emerged: a reevaluation of Fed rate cut expectations, escalating geopolitical tensions, and ongoing first-quarter earnings season concerns. Despite market adjustments, the extent of the pullback has been contained against a still healthy macroeconomic picture and corporate earnings growth. We remain optimistic as CEO confidence is on the rise, indicating a greater willingness among firms to allocate more capital this year compared to last year. This confidence typically translates into increased hiring and investment in capital expenditures. Please reach out to your advisor at Valley National Financial Advisors with any questions.  

Current Market Observations

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Geopolitical tensions combined with updates on labor markets fueled a volatile week of trading in both stocks and bonds. The Dow Jones Industrial Average fell -2.3% for the week, the S&P 500 Index fell –1.0%, and the NASDAQ fell -0.8%. Energy was the best-performing sector for the week (+2.8%), while Health Care was the worst-performing sector (-3.9%). First-quarter earnings season begins this week with the large-cap banks. JP Morgan, Wells Fargo, and Citigroup will report results this Friday. As the “higher for longer” feeling sunk into the fixed-income markets, traders reacted by selling bonds, and as a result, the 10-year Treasury rose 18 basis points to close the week at 4.39.

U.S. Economy 

Strong economic results raised overall concerns about the Federal Reserve rate cut timeline. The week ended positively with a robust jobs report indicating a healthy labor market, low unemployment, and steady wage growth, easing inflation worries. Despite concern over Fed actions, markets closed with optimism, interpreting the jobs report as a sign of continued economic and corporate growth. We continue to closely monitor the price of oil, which surged to a six-month high on Friday. A sustained upward trend in oil prices could reignite inflationary pressures, complicating Federal Reserve efforts to manage inflation. See the chart below from Trading Economics, which shows Crude Oil prices over the last year. 

Policy and Politics 

Over the weekend, news of the Israeli military’s withdrawal of ground troops from the Gaza Strip sparked optimism. This comes as Egypt offers to host a new round of talks aimed at reaching a ceasefire and hostage release deal. Both Israel and Hamas have agreed to participate. Over the last week, Russian drone attacks in Kharkiv intensified last week, causing casualties and damage. National polls indicate a continued tight race with President Biden and former President Trump neck-and-neck as Democrats claim a significant fundraising lead over Republicans.

Economic Numbers to Watch This Week 

  • U.S. Consumer Price Index for March 2024, prior 0.4% 
  • Minutes of Fed’s March FOMC meeting. 
  • U.S. Producer Price Index for March 2024, prior 0.6% 
  • U.S. Import Price Index for March 2024, prior 0.3% 

Last week, several Federal Reserve presidents provided updates, reinforcing the view that the economy continues to perform well. We look forward to updates from multiple large banking institutions later this week, which should provide valuable data points on the banking industry and economy. As more companies start releasing their earnings in the upcoming weeks, we will be listening for indications of improved sales and earnings growth across a wider spectrum of businesses beyond the dominant mega-cap tech stocks. Geopolitics will continue to be a risk that could derail the otherwise healthy macroeconomic outlook. Please reach out to your advisor at Valley National Financial Advisors with any questions. 

Current Market Observations

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Markets were mixed on a holiday-shortened trading week, with the Dow Jones Industrial Average rising 0.8%, the S&P 500 Index increasing by 0.4%, and the NASDAQ falling -0.3%. Utilities were the best-performing sector for the week (+2.9%), while information technology was the worst-performing sector (-1.3%). Oil prices continued to move higher, finishing the week with a 3.2% gain. Friday saw the Fed’s preferred gauge for inflation, the Personal Consumption Expenditure Index, rise 0.3% (excluding food & energy), matching economists’ expectations. The 10-year Treasury saw continued buying last week, pushing yields down four bps for the week, finishing at 4.21%.

U.S. Economy 

Although last week was a quiet week for economic releases, on Friday, we saw the Federal Reserve’s preferred gauge of inflation, U.S. Core Monthly and Yearly PCE (Personal Consumption Expenditures) for February, and both measures were lower, signaling that inflation continues to fall, see Chart 1 below from Valley National Financial Advisors and Y Charts shows U.S. Core Monthly and Yearly PCE for five years. Federal Reserve Bank Chairman Jerome Powell has stated very clearly that they are watching the inflation data and will be data-dependent in terms of rate movements. The current Fed has been the most transparent we can remember regarding interest rate movements, which is why we do not expect any rate cuts until well into the second half of 2024, and even then, those movements in rates, if any, will be mild and data dependent.

This week, we will see numbers for new payrolls and unemployment insurance for March 2024, and companies will start to prepare for 1st Q EPS reports. Otherwise, we will have a quiet week regarding economic releases.  

Policy and Politics 

Last week saw a holiday-shortened week for Washington, with Good Friday on March 29th. Elevated geopolitical tensions persist amid the ongoing conflicts in the Middle East and the Russia-Ukraine war. U.S.-China trade tensions continue to be elevated with recent news of China’s oversupply of solar energy, electric vehicles, and lithium-ion batteries impacting U.S. producers. President Biden trails former President Trump by around two points in national polling and around three points in swing states. Prediction markets show roughly even odds of a Democratic or Republican win.

Economic Numbers to Watch This Week 

  • U.S. ISM manufacturing for March 2024, prior to 47.8 
  • U.S. Factory Orders for February 2024, prior –3.6% 
  • U.S. Job Openings for February 2024, prior to 8.9 million 
  • U.S. ADP Employment for March 2024, prior 140,000 
  • U.S. ISM Services for March 2024, prior 52.6 
  • U.S. Employment Report for March 2024 
    • Nonfarm payrolls, prior 275,000 
    • Unemployment rate prior 3.9% 

Updates from Federal Reserve Board Members continue highlighting lower inflation readings, improved outlook for GDP growth in coming quarters, and healthy job growth. Markets appear to be warming to the idea that stronger growth for longer is preferred over lower rates. We are encouraged by signs of housing supply improvement, which should help this year’s spring selling season. As earnings season kicks off in the coming weeks, we will be listening to any signs of economic softness communicated by corporate management teams. We continue to monitor geopolitical risks for signs of increased tension and spillover into new areas. Please reach out to your advisor at Valley National Financial Advisors with any questions. 

Current Market Observations

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Last week, the Federal Reserve’s more dovish tone was well received by the markets. The Dow Jones Industrial Average rose 2.0%, the S&P 500 Index rose 2.3%, and the NASDAQ rose 2.9%. Communication services were the best-performing sector for the week (+3.9%), while healthcare was the worst-performing sector (+0.5%). The CBOE Volatility Index fell about 9% for the week, indicating greater confidence and calmness among investors (See Chart 1 below). The latter part of the week saw market participation broadening beyond mega-cap stocks, with small and mid-cap stocks performing well. With the Fed’s rate outlook intact, the 10-year treasury saw increased buying, pushing yields down 12 basis points for the week. 

U.S. Economy 

As mentioned above, the CBOE Volatility Index fell again last week. The index measures the implied expected volatility of the U.S. stock market. VIX (Volatility Index) is used as a barometer for fearful and uncertain markets. The VIX tends to increase when the market decreases and vice versa. During the financial crisis in 2008-2009, the VIX reached as high as 80.86. See Chart 1 below from Valley National Financial Advisors and Y Charts shows the VIX over 5 years.

The FOMC meeting went as expected, with Chairman Powell stating that the current path for rate cuts remains on track, and they plan on up to three rate cuts by year-end 2024. Just as important as the rate cut story, the FOMC announced an increase in their projections for economic growth in 2024 from 1.4% to 2.1%, thus cementing the so-called “soft-landing” scenario. Specifically, Chairman Powell noted, “The economy is strong, the labor market is strong, and inflation has come way down.” Lastly, Powell mentioned that it was appropriate for the Fed to slow the pace of its balance sheet reduction program, which has been another source of restrictive monetary policy. 

Thursday saw 118 new 52-week highs for the S&P 500, the newest highs in 3 years. The prior 13 times this number of 52-week highs was reached resulted in higher stocks one year out 13 out of 13 times, with the average return being 12%, see Chart 2 below from the Carson Institute. 

Policy and Politics 

Global turmoil escalated last week with an ISIS-linked terrorist attack in Moscow shortly after Vladimir Putin was reelected to another six-year term. Further, the Ukraine/Russia and Israel/Hamas wars are showing no signs of ending. In Washington DC, President Biden signed a $1.2 trillion spending package that was previously passed by the U.S. House and U.S. Senate, thus narrowly avoiding an embarrassing government shutdown. With this out of the way for Washington, DC, we will move heavily into the 2024 campaign season with both political parties (Democrats & Republicans) vying for wins in November.   

Economic Numbers to Watch This Week 

  • U.S. Durable Goods New Orders MoM for Feb 2024, prior –6.11% 
  • U.S. Initial Claims for Unemployment Insurance for the week of March 23, 2024, prior 210,000 
  • U.S. Real GDP (Gross Domestic Product) QoQ for Q$ 2023 (Revised), prior 3.20% 
  • U.S. Index of Consumer Sentiment for March 2024, prior to 76.50.
  • 30-year Mortgage Rate for the week of March 28, 2024, prior to 6.87% 
  • U.S. Core PCE (Personal Consumption Expenditures) Prince Index YoY for Feb 2024, prior 2.85% 

Last week, several encouraging signs for the economy and markets were observed. The Federal Reserve left rates unchanged at their Wednesday meeting while upgrading their GDP growth projections and highlighting the strength and resilience of labor markets. Despite a recent blip in inflation readings, the trend lower appears intact, and the Fed continues to see three rate cuts coming later this year. Lower rates will serve as a tailwind to the housing market, which reported improved existing home sales last week. Despite these encouraging signs, we remain focused on identifying emerging market risk areas. We will continue to look for investment opportunities where the risk vs reward tradeoff looks the most compelling. Please reach out to your advisor at Valley National Financial Advisors with any questions. 

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. 

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.