Metrics that Matter

Metrics that Matter

March 05, 2024

March 5, 2024

Click here for our weekly newsletter, The Metrics that Matter, which reviews key drivers of recent market performance and monitors important economic updates for the week ahead.

U.S. stocks continued their march higher last week with the Nasdaq index joining the S&P 500 in record territory for the first time in over two years.
 
As we bid farewell to February, it’s worth noting that the S&P 500 posted an impressive 5% gain on the month and has now surged by 25% since the recent market rally started on October 29th of last year.  There was a noticeable broadening of participation in the equity rally throughout the month, with the Russell 2000 and Russell Mid Cap indexes outperforming the larger-cap-oriented S&P 500. The same was true when looking at performance through a sector lens.  The S&P 500’s Industrials and Materials sectors were amongst the top performing sectors for the month, outperforming the Technology and Communication Services sectors which had been the primary driver of market returns over the past year.

In an encouraging sign to the equity market rally, fourth quarter earnings season is drawing to a close with the S&P 500 on pace to record its second consecutive quarter of positive earnings growth. This is an encouraging sign as last year’s impressive 26% return for the index was primarily driven by valuation expansion as earnings were relatively flat on the year. However, 97% of S&P 500 companies have now reported fourth quarter results with the index on pace to report a +4% year-over-year growth rate in earnings.  And looking ahead, analysts expect earnings growth of +11% for the full 2024 calendar year: an encouraging sign for equity investors overall, as over the long term stock prices tend to follow a company’s ability to generate earnings growth. 
 
Fixed income came under pressure throughout the month as investors reassessed their expectations on monetary policy in the months ahead. After a stronger-than-expected reacceleration in January’s Consumer Price Index (CPI) report, investors dialed back their aggressiveness in terms of timing and size of potential interest rate cuts from the Fed this year. Coming into 2024, investors had placed a 70% probability that the central bank would begin cutting their Fed Funds rate at the upcoming March meeting and had priced in a year-end 2024 Fed Funds rate of just 3.75%-4.00% (implying six 25 bps cuts throughout the year). However, fast forward to today and investors are now pricing in the first rate cut to occur at the Fed’s June meeting and for the central bank to bring their policy rate down to just a 4.50% - 4.75% range by year-end: this scenario is 75 bps higher than what was priced into markets just two months ago. As a result, Treasury yields rose significantly during the month with the 2-Year Treasury yield spiking 37 bps to 4.64% and the 10-year Treasury yield rising 26 bps to 4.25%. 
 
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The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.