Weekly Market Brief: March 18, 2024

The S&P 500 Index fell for the second straight week, something we haven’t seen since last October. It’s premature to call this a ‘selloff’, however: the index is less than 1.5% from the all-time intraday high it set on March 8. If it’s not the magnitude of the decline, what is it about the decline that might have investor’s on edge? Perhaps it’s that last week’s weakness in stocks coincided with a resurgence in interest rates (10-year Treasury yields rose each day last week) and a strengthening US Dollar. Those two were major catalysts for the bear market of 2022, so a return of that relationship could present a headwind for the balance of 2024.

Discontinued Disinflation?

The Consumer Price Index surprised to the upside last Tuesday. Inflation rose to a 3.2% annual rate, up from the prior month’s reading of 3.1%. Core prices were even worse, rising 3.8% year-over-year.

Markets seem to have concluded that higher than expected inflation means fewer interest rate cuts by the Federal Reserve. Futures prices imply that the first cut won’t come until July, now, and that we’ll only get 0.75% in rate reductions by year-end. Later this week, Jerome Powell & Co. will get to share their thoughts on the disappointing inflation results when they meet to discuss policy.

One thing working in the Fed’s favor? CPI excluding shelter has been below the Fed’s 2% annual inflation target since June. And shelter prices continue to normalize from 2021 levels.

Relatively Speaking

It may be a new year, but sector leadership to start off 2024 looks awfully familiar. Through the first two-and-a-half months, Communication Services has risen 11.1%, and Information Technology has gained 10.7%. The Energy and Financials sectors are also outperforming the benchmark S&P 500 index year-to-date.

Real Estate and Utilities, the two sectors most negatively impacted by high interest rates given their elevated debt levels, are repeating last year’s disappointing performances. REITS are down 3.1%, and the Utes are down 0.7%.

Leadership over the last month, however, shows an interesting shift taking place. The value-oriented Materials, Energy, Industrials, and Financials sectors are all outperforming the overall market, Consumer Discretionary and Communication Services - both growth-oriented sectors - have lagged.

What's Ahead

Here are the key data releases and events to keep on eye on in the coming days.