ECONOMIC REVIEW

  • The final reading of Gross Domestic Product, the most widely used measure of economic activity, for the fourth quarter of 2023 was revised higher to an annual rate of 3.4%, versus the anticipated 3.3%.
    • One of the major contributors to the upward revision was an increase in consumer spending, particularly in the services sector of the economy.
    • Increases in government spending and non-residential investment also drove the final reading higher, while a decrease in private inventories was a headwind to GDP.
  • The Personal Consumption Expenditures Price Index (PCE) measures inflation within the U.S. economy.
    • PCE illustrated that in February prices rose by 2.8%.
    • Core PCE, which excludes the more volatile food and energy prices rose only 2.5%, the lowest reading since March of 2021.2
  • The slight rise in the headline inflation reading, coupled with a fall in the core measure implies an overall disinflationary environment. However, energy prices are still rising.
    • This is exemplified by the rise in oil prices of 4.66% in February.
  • Personal income, released along with PCE, rose 0.3%, a moderation from January’s 1.0% figure.

How does PCE and GDP impact you?

  • The Federal Reserve’s (Fed’s) favorite measure to gauge the inflation’s trajectory is core PCE.
    • The speed and timing at which interest rate cuts come from the central bank may depend on how fast this core measure continues to fall.
  • Cutting interest rates too soon could reignite inflation, which has been moderating over the past year, but cutting rates too late could hinder economic growth.
    • Continued strong readings of GDP may give the Fed confidence that the economy will remain resilient.

LOOK FORWARD

  • This week, the jobs report, which contains data on the health of the U.S. labor market will be released. This will be in the spotlight for investors.

How does the Labor Report impact you?

  • The Fed has two jobs. They want to keep prices stable and promote maximum employment (keep the unemployment rate low). This means the Fed will intently be focused on the state of the labor market.
    • A weaker labor market may give the Fed more incentive to cut rates sooner than expected.

MARKET UPDATE

Market Index Returns as of 3/28/2024WTDQTDYTD1 YR3 YR5 YR
S&P 5000.40%10.56%10.56%31.76%11.63%15.04%
NASDAQ-0.29%9.31%9.31%37.43%8.73%17.18%
Dow Jones Industrial Average0.84%6.14%6.14%23.72%8.56%11.30%
Russell Mid-Cap1.66%8.60%8.60%24.49%6.18%11.09%
Russell 2000 (Small Cap)2.60%5.18%5.18%22.02%0.27%8.10%
MSCI EAFE (International)0.13%5.78%5.78%15.77%4.66%7.32%
MSCI Emerging Markets0.45%2.37%2.37%8.65%-5.12%2.22%
Bloomberg US Agg Bond0.23%-0.78%-0.78%2.17%-2.46%0.36%
Bloomberg High Yield Corp0.10%1.47%1.47%12.08%2.26%4.21%
Bloomberg Global Agg0.15%-2.08%-2.08%0.62%-4.69%-1.17%

OBSERVATIONS

  • Two of the three major equity indices were positive in the past week, with only the technology-oriented NASDAQ falling slightly (-0.29%). The Dow Jones rose 0.84% and led the way over the S&P 500 which returned 0.40%.
  • Mid and small-cap stocks outperformed their large-cap peers, rising 1.66% and 2.60%, respectively.
    • The rise in small and mid-cap names, as well as the relative outperformance of the Dow shows a potential broadening market outside of the technology companies that dominated 2023.
  • Both international and emerging markets were positive in the shortened trading week, with emerging markets leading the two, returning 0.45%.
  • Bonds rose for the second straight week as yields moderated once again.
    • Lower credit quality bonds have performed well while both U.S. and international bonds remain in the red on the year despite a move up on the week.

BY THE NUMBERS

  • Sam Bankman-Fried Receives a 25-Year Prison Sentence: Sam Bankman-Fried, the billionaire who was tried and found guilty of fraud pertaining to his cryptocurrency exchange, will be behind bars for 25 years. Bankman-Fried’s lawyers argued that the sentence should be in the 5-7-year range, while prosecutors were seeking 40-50 years. For perspective, Bernie Madoff received 150 years, Jeff Skilling (CEO of Enron) received 14, and Elizabeth Holmes (Theranos founder) spent 11 years behind bars. The judge who carried out the sentence berated Bankman-Fried, accusing him of multiple counts of perjury for intentionally lying under oath, and for witness intimidation. The sentencing of other FTX co-conspirators is expected to come in the following weeks. Because of testimony provided to the prosecution, their sentences are expected to be lighter. 4
  • Francis Scott Key Bridge in Baltimore Collapsed: A container ship bound for Singapore early Tuesday morning crashed into and collapsed the Francis Scott Key Bridge in Baltimore, Maryland. The ship lost power and issued a distress call, as well as attempted to drop anchor before eventually colliding with the bridge. Searches continue for six missing workers who were filling potholes at the time of the collapse. All six are tragically presumed to be dead. The destruction not only had a significant human toll, but also a large economic one. As one of the largest ports in the United States, particularly for the automotive industry, there may be a lengthening of supply chains, especially in the area regionally. The bridge also handles roughly 35,000 commuters a day, which will pose significant challenges to local citizens. So far there has been no link to terrorism that has been identified or published by law enforcement agencies.

Reprinted with permission from BTN. Copyright © 2021 Michael A. Higley.