Presented by The PensionmarkMeridien Team, March 12, 2024
Last week featured major U.S. stock indexes consolidating as Federal Reserve Chair Jerome Powell struck a cautious tone on rate cuts, while gold and bitcoin prices shined and reached all-time highs. Headline labor market data also continued to extend its recent momentum.
Overall, last week, theS&P 500 declined fractionally, by 0.26%1, the Nasdaq 100 fell by 1.55%2, and the Dow Jones Industrial Average decreased by 0.93%3.
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FED: RATE CUTS “AT SOME POINT THIS YEAR”
Looking for quick rate cuts? Not so fast. Markets got excited about the prospect of lower rates coming sooner rather than later towards the end of 2024, initially placing probability on a March rate cut. Well, here we are in March. Inflation is still sticky, and no rate cuts yet.
In his semiannual testimony before Congress, Powell reiterated that the Federal Reserve (Fed) is not ready to start cutting interest rates4 yet and noted that cutting too soon risks a losing battle against inflation. “The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” Powell said.
Depending on the metric used, year-over-year inflation was running between 3.1% (CPI) and 2.4% (PCE) in the most recent data. So, there is still more inflation-cooling evidence needed to trigger cuts without risking retriggering inflation. Cutting rates prematurely while inflation’s grip is still tight would defy conventional economic wisdom.
GOLD SHINESAlso making headlines last week, the price of spot gold rose to brand new all-time highs, reaching highs near $2,1955 per troy ounce. This eclipsed the previous all-time high of nearly $2.150 per troy ounce.
If you ask ten people why gold rose so much last week, you may get ten different reasons. Historically, the shiny yellow metal tends to move higher during periods of declining interest rates. So, some investors may be positioning for eventual rate cuts. But there is also the safe haven aspect of owning gold and a flight to quality during periods of geopolitical tensions and high levels of spending by governments.Chinese central bank buying6 in February has also firmed gold prices.
BANK STORM CLOUDS LINGERING?
Monday marks the first anniversary of the short-lived banking crisis of 2023 and the collapse of Silicon Valley Bank. Another possible contributor to gold’s rise could be news surrounding New York Community Bancorp (NYCB). Shares of NYCB have been volatile in recent weeks as the bank has been impacted by loan losses stemming from commercial real estate.
A $1 billion rescue package7 was put together last week, headed up by former Treasury Secretary Steve Mnuchin’s Liberty Strategic Capital. Mnuchin will also be a new director on the NYCB’s board. After a wild ride in the stock last week, shares ended lower by 3.66%8 by week’s end.
LABOR MARKET: POSITIVE WITH REVISIONS
Headline job growth continued in February, with 275,000 jobs added9 versus Wall Street expectations for 198,000. Once again, strength showed in the healthcare and government sectors. Under the hood, revisions to December and January data showed cuts of 167,000 jobs, a rather significant reduction to the payroll gains posted for those two months.
Over the past year, markets have gotten accustomed to higher-than-expected growth in the monthly jobs data. As markets have generally been in ‘more jobs, less cuts’ mode, today’s number pumped the brakes on that mantra,” wrote10 Lindsay Rosner, head of multi-sector fixed-income investing at Goldman Sachs Asset Management.
So, there are mixed opinions on the actual strength of the labor market these days after the extended period of headline strength in the last year. In addition, the unemployment rate ticked higher to 3.9% versus expectations of 3.7%.
BITCOIN RALLY
The recent Bitcoin rally continued last week, with prices reaching a record high near $70,00011 per bitcoin on Friday and falling to sub-70,000 levels later in the day. Opinions vary on the future direction of Bitcoin price, with proponents citing its limited supply and others noting there is no intrinsic value to the asset.
Although volatile and on the riskier end of the spectrum as far as assets go, money has warmed up to the top cryptocurrency by market value in recent weeks and days. It seems that as long as governments continue to print money, Bitcoin will have its place.
CPI THIS WEEK
This week, we get the always heavily anticipated Consumer Price Index (CPI) report for February. Given the unexpected rise in the CPI in January (3.1% YoY increase), this week’s report is likely to face closer scrutiny than usual. Analysts expect the year-over-year inflation rate to remain steady at 3.1%, with monthly expectations being a 0.4% increase versus January’s 0.3% increase.
Many folks are calling this recent push the “last mile” in the inflation fight, but even though this is the current prevailing narrative, nobody can know for sure. The most recent data on rate cut expectations show June as a Federal Reserve meeting highly favored for a rate cut. This week’s CPI data should further cement those probabilities or shift them.
A REMINDER ON LONG-TERM INVESTING
Markets are always looking ahead to the next piece of data, the next narrative, or the next theme.
We all feel the inflation every day across the board in everything we buy. There is no doubt about inflation’s negative impact on Main Street, yet disciplined long-term investors have benefited from inflation on Wall Street. Long-term investing can even help to “hedge” the effect of inflation on one’s overall financial well-being.
With that reminder noted, please feel free to reach out to us with any questions or needs.
We are always here as a resource for you.
The PensionmarkMeridien Team may be reached at 866-871-9963 or meridienteam@pensionmark.com
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Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark and WIA Holdings, LLC (“World”) are affiliated through common ownership with Pensionmark Securities, LLC. Securities offered through Pensionmark Securities, LLC (Member FINRA/SIPC).
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This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Citations:
1. Trading View, March 9, 2024
2. Trading View, March 9, 2024
3. Trading View, March 9, 2024
4. CNBC, March 6, 2024
5 Trading View, March 9, 2024
6. ING, March 8, 2024
7. FORTUNE, March 6, 2024
8. Trading View, March 9, 2024
9. CNBC, March 8, 2024
10. Barron’s, March 8, 2024
11. CNBC, March 8, 2024
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Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark and WIA Holdings, LLC (“World”) are affiliated through common ownership with Pensionmark Securities, LLC. Securities offered through Pensionmark Securities, LLC (Member FINRA/SIPC).