Financial Market Update – Week of 3/4/2024

The last few months have been enjoyable for long-term investors who have remained disciplined and focused on their goals. The artificial intelligence (AI) theme continues to power the major U.S. stock indexes, and market sentiment remained strong in the leap day-extended month of February.

As positive market sentiment continued throughout last month, now is the perfect time to keep you informed on the latest developments. Here is the latest.

Major Stock Indexes

February rewarded long-term investors in U.S. stocks, as the S&P 500, Dow, and Nasdaq 100 had their fourth consecutive month of gains. Market bulls were cheering the prospects of a more accommodating Fed at some point, and there were many earnings results in mega-cap growth stocks supporting the positive market sentiment.

For the month of February, the S&P 500 added a healthy  5.17%, the Nasdaq 100 tacked on 5.29%, and the Dow Jones Industrial Average rose by 2.22%.

Inflation Readings: A Bit Toasty

Inflation metrics released in February showed data mostly running hotter than expected. Stock market bulls didn’t seem to mind in February, however. Anticipation of a more dovish Fed in the future, several strong corporate earnings releases, and an overall theme of bullishness all contributed to the final results in February.

Consumer Price Index (CPI): The Consumer Price Index (CPI) for January showed a monthly increase of 0.3% and a year-over-year increase of 3.1%. Estimates were for gains of 0.1% for the month and a 2.9% gain year-over-year.

Prices for goods and services remain high, and inflation is not likely to decrease linearly. Shelter and food prices were both contributors to the larger-than-expected increase. Major U.S. equity markets initially reacted sourly to the data release but shook off the jitters over the following two trading sessions.

The hotter-than-expected inflation data could give Fed watchers additional reason to reconsider the timing of rate cuts this year, should we get any.

Producer Price Index (PPI): Two days post-CPI data, we got hot producer pricing data. According to the report, wholesale prices (PPI) in January increased by 0.3% month-over-month, higher than the gain of 0.1% predicted by Dow Jones economists.

Core PPI, which excludes volatile food and energy, was the biggest surprise, as it increased by 0.5% compared to the expected 0.1% increase. Inflation is persisting, and ebbs and flows in data are to be expected.

The hotter-than-expected inflation prints led to the S&P 500 experiencing a marginal decline for the week, but bulls were back in charge the following week, sending the S&P 500 to all-time highs.

Core Personal Consumption Expenditures (PCE) Index: Core PCE (which excludes food and energy) is the Fed’s preferred inflation metric. This metric came in mostly in line with analyst estimates at the end of February, showing an increase of 0.4% on the month and an increase of 2.8% versus one year ago.

Hot Labor Market Data 

The January jobs report released in early February showed a blowout jobs number with 353,000 jobs created vs. 185,000 forecasted. Is strong good employment data a good thing? It depends on how you look at it.

The January jobs data was much better than expected, suggesting economic strength. However, it also indicates that the economy may be running too hot, which could impact rate-cut hopes. Factoring in recent warm inflation data, it has become more unlikely that there will be a rate cut in March or even May.

Treasury Yields Rose in February

Inflation warming and the increased probability of any rate cuts being pushed farther into the future contributed to government bond yields rising in February.

The widely watched 10-year Treasury Note Yield rose somewhat sharply in February, closing the month at a yield near 4.251% . This constituted a rise of 28.5 basis points month-over-month.

The rise in yields naturally translated to higher mortgage rates, contributing to the higher costs of shelter — and sidelining many potential would-be borrowers.

Bitcoin Rally

The price of the largest cryptocurrency by market capitalization, Bitcoin, rose 51% in February, as demand from the newly issued spot ETFs helped to propel prices higher.

On the minds of many Bitcoin enthusiasts and proponents is the upcoming Bitcoin halving event, which is estimated to occur in April. The halving, as it is called, means that the amount of new Bitcoin created every day will decrease by 50%, creating a smaller daily addition of supply after the event.

Bitcoin fans (also known as Bitcoiners) embrace the limited supply aspect of Bitcoin versus fiat (paper currency), which is created with an unlimited supply by central banks.

So, it has been a story of basic economics lately: New supply will decrease after the halving event, and demand has increased given the new spot ETFs. The result has been higher prices.

The maximum number of Bitcoins that will ever be created (hard cap) is 21 million BTC. So far, approximately 19 million have been created (mined).

Bitcoin is a highly volatile and speculative asset and is not suitable for all investors.

The Takeaway

February featured continued overall bullish equity market sentiment supported by positive earnings results from many companies.

The warmer inflation data was merely a blip last month as far as major U.S. stock indexes were concerned. But should inflation stay running hotter than expected, it could further impact Fed rate cut hopes for the year. Inflation is very real, but it affects Main Street a lot more than Wall Street, at least for now.

Headwinds exist for equities, but you wouldn’t know it by glancing at the major stock market averages as the S&P 500 and Nasdaq 100 notched fresh all-time highs on March 1st. Long-term investing continues to be the ticket.

Thank you for reading!

The Trademark Capital® Team

This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Trademark Capital’s investment strategies are built using quantitative, proprietary algorithms that are designed to identify and react to changing market conditions. However, investors should be aware that no investment strategy or risk management technique can guarantee returns or eliminate risk in any given market environment. As with all investments, Trademark Capital Management’s investment strategies are subject to risk and may lose money. The investment strategies presented are not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Due to our active risk management, our managed portfolios may underperform during bull markets. Past performance is no guarantee of future results.

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