Economic and Market Overview
March 2024
Despite relatively hot inflation data, equities rallied and credit spreads tightened, while Treasuries had a quiet month by recent standards.
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The S&P 500 closed March at a new record high, a milestone the index has now achieved 22 times in ‘24. In March, the equity rally became less reliant on the so-called “Magnificent Seven” as the equally-weighted version of the S&P 500 returned 4.5%. Risk assets welcomed yet more strong economic data as well as Chairman Powell’s indications that the Fed still planned to cut rates this summer despite two months of hotter inflation data. Treasuries rallied early and then sold off after the mildly hot inflation data, though for the month yields were nearly unchanged across the curve. In credit, supply remained fairly heavy, though for the first time in 2024 the month saw less than its recent average. J.P. Morgan reported $141 billion in total IG issuance, 12% shy of the $161 billion average of the trailing four Marches (excluding 2020 when issuance surged in response to the unfolding Covid-19 pandemic). The share at the long end also lightened up, though, as NISA estimates that only 15% of the total came at maturities beyond 10 years, compared to around 30% in February. This overall positive technical tailwind combined with the risk-on tone to send credit spreads tighter across the board. Oil gained for the third straight month, while the Dollar Index rose modestly.
Economic Data
Nonfarm payrolls rose at a 275,000 pace in February. Although the figure exceeded consensus by 75,000, the prior two months were revised a net 167,000 lower, particularly January, for which the previously-scorching 353,000 pace was revised down by 124,000. By contrast, the unemployment rate surprised with a 0.2% uptick to 3.9%, its highest level in over two years and average hourly earnings decelerated to just 0.1% MoM. For March, the rate of NFP growth is predicted to decelerate to a still-torrid 200,000, with the unemployment rate dipping 0.1%, to 3.8%, when official data are released on April 5. Consumer spending disappointed again in February, as headline retail sales rose at a 0.6% pace, 0.2% less than expected, and January’s number was revised 0.3% lower, to -1.1%. Consumer sentiment surveys were split, however, as the Conference Board’s disappointed, while the final version of the University of Michigan’s surprised to the upside. Likewise, in the manufacturing sector both hard data and sentiment indices were mixed. Housing data for February were positive on balance, particularly housing starts and existing home sales which surged past expectations. U.S. real GDP grew at a 3.4% annualized rate in Q4 according to the third release, 0.2% over expectations, as personal consumption was revised another 0.3% higher, to 3.3%. Q1 GDP growth is expected to slow to around a 2.0% annualized pace.
Inflation
Inflation data releases were mostly as expected, yet still hot enough to spark more hawkish expectations for monetary policy. Headline CPI rose at a 0.4% MoM pace in February, in line with surveys, but up from 0.3% in January. Core CPI, on the other hand, came in at 0.4% MoM, topping forecasts by 0.1%. PPI releases were hotter than expected across the board once again. Core PCE came in at +0.3% MoM, and 2.8% YoY, both matching estimates. However, the six-month annualized rate jumped to 2.9%. After two straight months of increases, breakeven levels stabilized, remaining rangebound throughout the month. In fact, other than the 2y break, which finished 7 bps lower, at 2.72%, 5, 10 and 30-year levels ended unchanged to the second decimal, at 2.44%, 2.32% and 2.28%, respectively. The 5y/5y rate dipped just one bp, to 2.25%.
Monetary Policy
The FOMC left policy unchanged at their March meeting, though the surrounding communications were more dovish than expected. Though the dot plot indicated that the Committee is nearly evenly divided, 10 to 9, between projecting three cuts this year or two, the median remained at three cuts. This despite the median core PCE inflation projection rising to 2.6% for 2024. Chairman Powell endorsed the narrow three-cut majority, saying he viewed the elevated inflation readings in January and February as a “bump in the road” that did not change his expectation that we are on a path back to 2%. The Committee also discussed balance sheet policy, announcing that they expect to reduce the pace of quantitative tightening “fairly soon,” which we interpret as one of the next two meetings.
Sources: Bloomberg Index Services Ltd., Bloomberg.
This overview is for informational purposes only. The information has been obtained from sources considered to be reliable, but the accuracy and completeness are not guaranteed. There is no assurance that any economic trends mentioned will continue or that any forecasts will occur. Economic data is as of the dates noted.
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