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Insights & Education

March 2024 / Q1 2024 Monthly Commentary

Updated: 6 days ago

February 2024 Monthly Commentary

March/Q1 2024 Market Review

Economic strength, muted inflation data, and Fed indications of potential future rate cuts drove positive performance across major asset classes. Stocks, bonds, and various commodities experienced prices increases in March (some markets achieved their strongest March performance in recent years).

The U.S. equity market was the clear winner during Q12024, with the S&P rising over 10%. Fixed income showed some strength in March, however the reality of reduced FOMC action and the likelihood of restrictive rates for longer led to slightly negative overall returns in the broad bond market. Cash investments remained positive, with Fed Funds holding steady in the 5.25%-5.50% range.

March witnessed a broader rally in equity markets. While the communication services sector continued its dominance in the first quarter (+15.82%), other sectors took the lead in March. The energy sector led March, up +10.6%, while utilities and materials each returned over 6%. All S&P sectors delivered positive total returns last month. Commodities also experienced significant gains, with oil climbing over 7% and gold up over 8%.

The bond market’s performance in the first quarter fluctuated, starting with a relatively flat January, followed by a sharp increase in yields in February, and slightly lower yields in March.

  • Overall, broad investment-grade markets reported a slightly negative total return for the quarter, although performance varied by duration and sector.

  • Short and intermediate bond mandates outperformed aggregate bond markets, with positive performance observed in 1-3 year bonds.

  • Corporate bonds, government agency bonds (including CMBS), and municipal bonds all outperformed treasuries as risk premium spreads remained low and volatility subsided.

  • High beta sectors, including EM debt and high yield, were positive in Q1, in line with other risk assets.

  • Preferred bonds witnessed significant upside (+4.73%), benefitting from the financial sector’s resurgence in the first quarter.

Data Recap

March started with some initial drama but settled into the familiar interplay of jobs numbers, inflation data, and their impact on FOMC consensus.

On March 6th, New York Community Bank faced liquidity issues due to commercial real estate assets, prompting investor intervention, notably from former U.S. Treasury Secretary Mnuchin. This incident, reminiscent of events in March 2023, was short-lived, as “risk-free” assets stabilized. March came like a lion, out like a lamb.

Economic indicators last month painted a picture of a robust yet slowing economy. Non-farm payroll figures for February exceeded expectations, though the previous months’ performance was revised downward. The unemployment rate nudged up slightly to 3.9%, its highest reading since early 2021 but still indicative of full employment. The service sector and retail sales reports saw slight declines, but some regions are seeing a significant manufacturing contraction. New home sales dipped, but existing home sales and building activity rebounded. Consumer confidence saw a slight decrease but remained far from concerning levels. March’s GDP reading for the fourth quarter rose to 3.4%.

Mixed inflation data continued to align with the Federal Reserve’s agenda. Both the Consumer Price Index (CPI) and the Producer Price Index (PPI) slightly exceeded expectations. Prices paid indices in both the manufacturing and the service sector showed modest declines. Unit labor costs decreased in the fourth quarter, while average hourly earnings fell for the month but remained stable year-over-year. At month-end, the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE), stood at 0.3% from 0.4% month-over-month and 2.5% versus 2.4% year-over-year, in line with expectations.

Chairman Powell’s testimony before Congress at the start of March underscored the Fed’s stance on rates: restrictive for now, with potential for adjustment in the future. At the March 20th FOMC meeting, rates remained unchanged for the fifth consecutive session, with expectations leaning toward potential cuts in the summer months to transition from the current restrictive monetary policy.

Chairman Powell emphasized the Fed remains “fully committed” to bringing inflation down to its 2% target. Powell emphasized that the “economy has made considerable progress toward [its] dual mandate objectives” and that “inflation has eased substantially while the labor market has remained strong, and that is very good news.

Toward the end of March, some Fed officials adopted a more hawkish stance, suggesting a wait-and-see approach regarding inflation before considering rate cuts. Governor Waller proposed caution, indicating the need to assess inflation trends before initiating an easing cycle.

Markets anticipate rate cuts, albeit fewer than last year. A key focus in the second quarter will be the proximity of potential easing measured amidst a still robust economy.


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