Markets Blog
David Matzko, LPL Research
Weekly Market Performance for the week of March 25, 2024. The S&P 500 continued its advance into record-high territory over the past week and finished higher for March by about 3%. This is the fifth consecutive month of gains for the index. Historically, such persistent positive momentum is a good sign for the broader market over the next 12 months. The recent outperformance of the Russell 2000 is also another potential positive for equities and suggests leadership is getting less concentrated and beginning to broaden out. Even though some Federal Reserve (Fed) officials warned against aggressive rate cuts this year, U.S. Treasury yields dipped last week. Intermediate and long-term yields saw the biggest declines. The decline in yields helped push the Bloomberg Aggregate Bond Index up for the week and added to its gains for the month.
Index Performance
U.S. and International Equities
Markets: The story for the equity markets this week was more around rotation than direction. While the major averages were not doing a whole lot, small caps made a nice run as more market participants looked to areas that have not participated in this latest rally to the extent that the technology sector has. That rotation contributed to a solid week for the value style relative to growth, which until recently had been clear leadership. The week’s top-performing sectors are on the value side of the style spectrum, including utilities, energy, and, to a lesser extent, healthcare, while the biggest laggard and only sector in the red for the week was the top growth sector, namely technology. International equity markets were not able to distinguish themselves, though for the quarter, European and Japanese equities generated respectable returns in dollars, and even stronger gains in local currencies.
The S&P 500 has now strung together five straight months of gains. Winning streaks of this magnitude are not only rare but provide another positive sign for stocks. Since 1950, there have only been 30 other occurrences when the market rose for at least five consecutive months. Forward returns following these periods were widely positive, with average and median 12-month gains of around 12%. Moreover, the S&P 500 traded higher twelve months later 93% of the time. April is also a historically strong month for stocks, with the S&P 500 generating an average April price return of 1.5% since 1950.
Fixed Income: Despite calls by several Fed officials for caution on premature rate cuts in 2024, the Bloomberg Aggregate Bond Index finished the week higher. The weekly gains added to an already positive month for March but couldn’t help erasing year-to-date losses for the index.
U.S. Treasury yields were generally lower during the week, with intermediate and long-term Treasury yields falling the most. Fed board member Christopher Waller, considered by the market to be a “pragmatic” hawk, made comments suggesting that if the economic landscape continues with a solid underpinning and inflationary pressures don’t ease at a faster pace, he wouldn’t advocate easing interest rates. The probability of a rate cut coming at the June 12 Fed meeting pulled lower to 64.4%.
Still, the lower Treasury yields this week were a result of strong foreign buying at the three Treasury auctions that took place. The Treasury Department auctioned off $76 billion (total) of 2-year, 5-year, and 7-year notes this week, with each auction well received by the market. With the expected increase in Treasury supply coming to market over the next few quarters, it was encouraging to witness demand pick up as well.
Commodities: Commodities advanced this week on the back of gains in energy and the agricultural and livestock space. West Texas Intermediate climbed back toward key resistance at $83. Ongoing geopolitical tensions in the Middle East and Ukrainian-led drone attacks on Russian refineries continued to support a risk premium in oil, while curbed OPEC+ production has supported the supply side of the market. In the U.S., crude stockpiles rose for the first time in three weeks as oil imports jumped higher. Forecasts for cooler temps in the U.S., a larger-than-expected drop in inventory, and oversold conditions sparked a relief rally in natural gas this week, pushing prices up 4%.
In the ag space, cocoa futures made front-page news as prices climbed for a sixth straight week. Cocoa’s parabolic advance this year has been underpinned by severe supply shortages stemming from weak harvests in West Africa.
Metals were led higher by gold. Declining yields and a dip in the dollar drove the yellow metal up over 2%. Copper traded modestly higher, supported by proposed output cuts among Chinese smelters, which produce over half of the world’s refined copper, according to Bloomberg.
Economic Weekly Roundup
Currency markets were top of mind this past week. As the yen continues to weaken in the wake of the new policy framework, government officials elicited a warning that the government is “always prepared” to intervene if the yen weakens further. The last currency intervention was in 2022, when the yen weakened to roughly 152 to the U.S. dollar. And in intraday trading this week, the yen slumped to a 34-year low against the dollar. For several days now, Japanese officials have warned investors of their willingness to be bold with direct intervention with the currency. The weak currency seems counterintuitive after the historic increase in rates, but investors are reading past the headlines and focusing on the Bank of Japan’s desire to keep loose financial conditions.
The Week Ahead
The following economic data is slated for the week ahead:
Monday: Construction Spending (Feb), ISM Manufacturing (Mar)
Tuesday: Job Openings and Labor Turnover Survey (JOLTS) (Feb), Factory Orders (Feb), Durable Goods Orders (Feb)
Wednesday: MBA Mortgage Applications (Mar 29), ADP (Mar), Institute of Supply Management (ISM) Services (Mar)
Thursday: Challenger Job Cuts (Mar), Trade Balance (Feb), Initial Claims (Mar 30)
Friday: Nonfarm Payrolls (Mar), Unemployment Rate (Mar), Consumer Credit (Feb)
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