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Market Update for March 8, 2024

Jeffrey B. Snyder, CFP® |
Categories
Market Update
Fed
Inflation

Sometimes it is useful to consider the pros and cons for the markets as we currently see them.  I am generally positive on the future, and it is easier for me to state the bullish case rather than the bearish case below, but let me give some of the positives and negatives as I see them for the balance of 2024:

PROS:

1.  Stock market momentum: The S&P 500 index is up 23% from the closing low of October 27th, 2023, which was also the Q4 2023 low.  This is a long way to come so quickly, but momentum can beget more momentum, and this is clearly a positive for stocks going forward.
2.  Inflation abating: The Federal Reserve has been explicit about wanting 2.0% inflation, and yet it persists a touch above this at 2.8%, as just announced 2/29/2024. This is still well down from the 9.1% annualized rate achieved June 2022, and lower inflation on net is a good sign for markets.
3.  Federal Reserve is done raising rates: They explicitly said they are done raising rates for this cycle, whereas in 16+ months they previously raised the Fed Funds’ rate an unprecedented 500 basis points.  This was expected to result in a recession, and yet thus far the…
4.  Economy is strong: Annualized GDP grew 3.2% in Q4 2023.
5.  Unemployment low: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate came in at 3.9%.
6.  Artificial Intelligence revolution:  a lot of attention and investing focus has centered on AI - from companies that produce chips or hardware like Nvidia, to companies that are investing in AI development like Microsoft.  Of course there are many, many other companies that are part of AI development, or have announced ways that they will use AI to improve their products or services, which has helped drive stock prices. 

CONS:

1.  Stock market valuation: many measures, including Price/Earnings ratios are historically high, and point to a market that is overvalued.
2.  Inflation is stubborn:  while inflation is abating, and is definitely better than 2022, rates are still above the 2.0% target, and a bit higher than predicted.
3.  Federal Reserve not lowering interest rates soon: They have explicitly said they are hoping and intending to lower the Federal Funds rate, and yet they have not yet done so.  The general economic strength, stock market momentum, and stubborn inflation rate mentioned above under “pros” helps to explain why- the Fed does not want to overheat the economy, after raising rates so vehemently to cool it down.  Lowering rates too fast or too much risks unwinding their progress.
4.  Narrow market leadership:  Tech alone is driving a lot of the stock market's momentum.  The Magnificent Seven (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla)  accounted for nearly 2/3 of the 24% gain in the S&P 500 in 2023.
5.  Markets can struggle to stay above “round numbers”:  after the S&P 500 crossed 5,000 in February of this year, we took a look back at how the S&P 500 fared after passing through other large, round numbers.  For those of you who are interested, I've summarized it at the end of this blog, but  it would not be surprising to see it bounce back and forth across 5,000 in the future.
6.  U.S. vastly outperforming the rest of the world:  One measure comparing the S&P 500 and an index of international stocks points to a 20-year-high gap.

 

The S&P 500 and Round Numbers:

  • The S&P 500 first closed above 1,000 on February 2, 1998.  Throughout 1998, the index dipped below and above 1,000 several times, remaining above until 2002, where it then darted back and forth until late 2003.  It remained above 1,000 until the 2008 crash, but then regained 1,000 on 8/20/2009.  
  • The S&P 500 closed above 2,000 in August of 2014, but it then crossed back-and-forth until March of 2016.
  • The S&P 500 closed above 3,000 in July of 2019, and then danced above and below for a few months, and then later plunged as part of the market downturn in 2020, regaining 3,000 in May of 2020.
  • The S&P 500 closed above 4,000 in April of 2021, but then crossed that milestone several times before dropping to 3,667.77 on 6/16/2022.  It regained 4,000 in July of 2022, but then crossed back-and-forth until March of 2023.
  • Finally, the S&P 500 closed above 5,000 for the first time on February 9, 2024, but has dipped below since.