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Your Monthly Market Newsletter, March 2024

Your Monthly Market Newsletter, March 2024

| March 05, 2024

Let’s spring into March! The weather may still be chilly, but stocks were hot in February, with all three major indexes hitting record highs this month. As this latest rally picks up steam, investors continue watching the Federal Reserve (Fed) for a potential delay in its anticipated interest rate cuts. In January, the Federal Open Market Committee decided to maintain interest rates and is expected to continue maintaining rates in its next meeting later this month. The Fed is concerned about the risk of cutting rates too quickly and is holding on until it has more confidence that inflation is still declining.

Also hot: the labor market, which continues to exceed economists’ expectations. In January, 353,000 jobs were added to the economy, and unemployment remains low at 3.7%1. However, layoffs continue across nearly every sector, with the tech industry being hit particularly hard in recent months. The Fed will also likely hold off on cutting interest rates until the job market starts to cool.

After a three-month trend of improving moods about the state of the economy, Americans’ attitudes have soured. The Consumer Confidence Index declined in February to 106.7, down from 110.9 in January. Consumers seem less worried about inflation’s impact on food and gas prices and more concerned about impacts from continuing layoffs and the upcoming presidential election2.

Housing costs have increased significantly in recent years, and along with rising mortgage rates, buying a new home has become unattainable for many. According to a recently released report from Zillow3, buyers now need to earn at least 80% more than they did in early 2020 to afford to own a home comfortably. Unfortunately, wage increases during this period have not kept up. In 2020, a household earning $59,000 could comfortably afford a monthly mortgage, well below the U.S. median income of $66,000. Today, households must earn roughly $106,500 to comfortably afford their mortgage, while the typical U.S. household earns an estimated $81,000. The housing affordability crisis has been particularly difficult for young Americans4.

As the weather begins to warm and flowers start to bloom, it’s a great time to give your finances a thorough spring cleaning. Decluttering and organizing financial matters may help bring a sense of clarity and control to your life. Activities such as replenishing emergency funds, reviewing your insurance policies and annual credit reports, and weeding out unnecessary expenses can help whip your budget into shape and prepare for the rest of the year. While reviewing your finances, if you need to make any changes or have questions, don’t hesitate to reach out to our office. We’re always here for you.


1https://finance.yahoo.com/news/jobs-market-hot-layoffs-keep-174400328.html

2US consumer confidence ebbs in February; inflation expectations fall | Reuters

3https://www.zillow.com/research/buyers-income-needed-33755/

4https://www.cnn.com/2024/02/03/economy/young-americans-giving-up-owning-a-home/index.html

Stocks

Equities maintained a strong performance, with all three major equity indexes notching over 2% monthly returns. Earnings reports continued to provide good news as the main force driving stock returns. Most companies on the S&P 500 have reported their Q4 2023 earnings, showing the index is on track for a second consecutive quarter of growth. As of February 29th, ten of the eleven sectors reported higher than anticipated earnings, and eight reported higher sales than expected.

Sector Performance

Every sector posted positive returns in February, although Real Estate and Utilities remain down on the year after a disappointing January. The strongest performing sectors were Consumer Discretionary and Industrials (both set a new 52-week high in February), and Materials. The expansion of returns in February to market areas outside large-cap tech names signals a potential broadening in the marketplace as returns from equities come from various sources. Real Estate and Utilities tend to be sensitive to interest rates and rose only slightly as market-based rates rose.

Bonds

Roses weren’t the only red seen in February; bond yields continued to climb higher, which pushed prices down for the second straight month. The yield on the 10-year rose 38 bps, and the 2-year yield rose 41 bps. The rise in yields was driven by hotter-than-expected inflation readings that led investors to believe the Federal Reserve will postpone cutting interest rates longer than initially anticipated. Longer duration bonds performed the worst relative to their peers because duration tends to amplify the magnitudes of returns.

Economic Update

Although inflation came in hotter than expected, it continued its downward trajectory. In addition to inflation softening, Gross Domestic Product (GDP) was revised slightly downward to 3.2% annualized for the fourth quarter of 2023. With these numbers and data from the most recent labor report, which continues to show resiliency, the soft-landing scenario the Federal Reserve has planned still seems achievable. The -0.8% month-over-month drop in retail sales, coupled with a slightly lower CB Consumer Confidence level, points to a consumer who may be experiencing weakness, which is also in line with a soft landing.

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Camels Help Restore Joshua Tree Forests After Wildfires

The Mojave Desert in Southern California is known for its iconic Joshua tree forests, but wildfires in recent years have devastated the landscape. These forests are being restored thanks to a team effort from dozens of volunteers and three two-humped helpers.

The National Parks Service is undertaking a massive project to replant Joshua trees in the Mojave. The trees start as seedlings in nurseries and then are brought to the desert for planting. The process seems straightforward but has one major hurdle – vehicles are prohibited from traveling to the site since Mojave is a national wilderness. So, volunteers had to haul the seedlings, protection cages, and water on foot. That is until one volunteer, Nance Fite, came up with the perfect solution – why not use camels to haul the plants and materials to the site?

Camels are a good fit for many reasons – they’re built to survive in the desert, and their wide, soft feet allow them to walk through the landscape without disturbing the sand and vegetation. Three camels – Herbie, Sully, and Chico – have been enlisted to participate in the restoration work. One project area has already been deemed complete after 3,500 seedlings were planted. Now, the volunteers are off to another area of the desert to continue their reforestation work.

Interestingly, the Joshua trees have had help from animals in the past. The Giant Ground Sloth roamed the Mojave Desert thousands of years ago, though it became extinct during the last Ice Age. The large mammals fed on Joshua trees; likely, their fur would’ve carried seeds to all corners of the desert, helping the plants flourish. Once they became extinct, the wind and rodents helped germinate the tree forests, but the germination rate is much lower now than it had been.

For more details on this extensive project, read here.

THOUGHT FOR THE MONTH

Index Definitions

Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.

Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.

NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector. 

S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.

S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.

S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.

S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.

S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.

S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.

S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.

S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.

S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.

Disclosures 

PLEASE NOTE: When you link to any of the websites displayed within this email, you are leaving this email and assume total responsibility and risk for your use of the website you are linking to. We make no representation as to the completeness or accuracy of any information provided at these websites.

A portion of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results. 

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

The statements provided herein are based solely on the opinions of the Osaic Research Team and are being provided for general information purposes only. Neither the information nor any opinion expressed constitutes an offer or a solicitation to buy or sell any securities or other financial instruments. Any opinions provided herein should not be relied upon for investment decisions and may differ from those of other departments or divisions of Osaic or its affiliates.

Certain information may be based on information received from sources the Osaic Research Team considers reliable; however, the accuracy and completeness of such information cannot be guaranteed. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein reflect the judgment of the Osaic Research Team only as of the date of this document and are subject to change without notice. Osaic has no obligation to provide updates or changes to these opinions, projections, forecasts and forward-looking statements. Osaic is not soliciting or recommending any action based on any information in this document.