March 16, 2024 Market Update

The U.S. stock market edged lower for a second straight week, the first back-to-back weekly declines since October.  Despite modest setbacks in the past two weeks, the S&P 500 Index is still up more than 7% so far in 2024.

The bond market suffered a bigger decline, reversing most of the gains posted in the previous three weeks.  Vanguard Total U.S. Bond Market ETF (BND), a proxy for investment-grade fixed-income securities, tumbled 1.2%, its biggest weekly slide in nearly six months.  Year to date, BND is down 1.5%.

Core CPI rose by 0.4% in February, in line with expectations.  Over the previous 12 months, consumer prices rose by 3.2%, the lowest year-over-year increase since May 2021.  By comparison, core CPI (which excludes volatile food and energy prices) rose by .04% last month, slightly greater than forecasters had predicted, and was up 3.8% on the year.  Meanwhile, the Producer Price Index (PPI), which measures the change in wholesale prices, rose a higher than expected 0.6% last month and 1.6% during the preceding 12 month period.

With inflation proving more stubborn than many economists forecasted and the economy steady, there is little incentive for the Federal Reserve to begin cutting interest rates.  “If inflation seems more entrenched than we think it is, the first thing we would do is keep rates where they are for an extended period of time,” says Minneapolis Fed President Neel Kashkari.  Fed Chair Jerome Powell has also signaled that America’s central bank will leave rates where they are so long as inflation remains sticky.

Stocks typically respond favorably to lower interest rates, but as long as the economy stays strong delaying rate cuts until inflation is clearly under control seems prudent.  Lowering rates too quickly could cause inflation to rebound, which in turn would force the Fed to reverse course and raise rates once again.  That scenario could be much harder on the stock market and the economy than starting rate cuts a bit later than expected.

That’s all for now.  Have a great weekend and invest wisely my friends.