Weekly Market Update: March 11, 2024

Alex Ralicki |

The Federal Reserve received some positive news in its battle to tame inflation. Although the Personal Consumption Expenditures (PCE) Price Index, the assessment of inflation most closely monitored by the Fed, rose on a month-to-month basis for January, the 12-month figures showed a continued downward trend. Specifically, the PCE and core PCE Price Index, the latter of which excludes the food and energy components, increased 2.4% and 2.8%, respectively. By comparison, those metrics were up 3.4% and 3.6%, respectively, as recently as September.

Is the U.S. consumer showing signs of fatigue? While personal income rose a notable 1.0% in January, and the labor market is still tight, growth in personal spending eased to just 0.2% during the first month of 2024. On point, the Commerce Department reported that new orders for manufactured durable goods decreased 6.1% in January, the third decline in four months. Likewise, the Institute for Supply Management said that the February reading on manufacturing activity was 47.8%, marking the 16th consecutive monthly contraction.

Chairman Jerome Powell and the Federal Open Market Committee (FOMC) are walking a tightrope on monetary policy. The central bank does not want to start cutting interest rates too early and see inflation reaccelerate. This was a problem for the U.S. economy in the late 1970s. However, the FOMC also must guard against staying too restrictive and risk creating stress in parts of the economy. Concerns about the negative impact of higher rates on the regional banks and the commercial real estate market persist. Our stance is that the Federal Reserve will begin easing monetary policies in the second half of this year to avoid the noted potential pitfalls.

Meantime, fourth-quarter earnings season was a success for Corporate America. Nearly 75% of the S&P 500 companies reported positive earnings-per-share surprises, with profit growth averaging around 4%. More importantly, the Wall Street consensus is calling for double-digit profit growth for 2024, which may be needed to justify the high price-to-earnings multiple for the index.

Conclusion: The major equity averages look extended, but investors may not want to fight the Fed and the positive impact of the burgeoning artificial intelligence revolution on the market in the near term. We still recommend a portfolio consisting mostly of high-quality, sector-leading equities and cash-equivalent securities.


Source: ValueLine.com