March 9, 2024 Market Update

The U.S. stock market ticked lower last week, easing 0.3%, based on the S&P 500 Index.  Despite the pullback, the S&P ended the week only slightly below the record high set on Thursday.

Meanwhile, the bond market rallied for a third week, as investors continued to snap up Treasuries, pushing the yield on the 10-year Note down to 4.09% (bond yields move inversely to prices), the lowest in a month.  Vanguard’s Total U.S. Bond Market ETF (BND), a proxy for investment-grade fixed-income rose to its highest weekly close in two months.

Nonfarm payrolls advanced 275,000 last month, according to last Friday’s Bureau of Labor Statistics report.  A strong labor market does not typically encourage looser monetary policy.  Futures contracts show Mr. Market is still betting the Federal Reserve will start reducing interest rates at the June monetary policy meeting.  Fed Chairman Jerome Powell also seems to be leaning in that direction, advising lawmakers on Thursday that policymakers are “not far” from cutting interest rates.

Nearly all S&P 500 companies have reported their 2023 fourth-quarter earnings results, and for the most part the news has been positive.   Fourth quarter earnings per share for companies included in the index comprised of large U.S. companies were up 22% over the prior year.  Over 70% of S&P 500 constituents posted earnings-per-share above Wall Street’s expectations, and approximately 65% reported higher revenues than expected.

The strong earnings season has provided fundamental support for this year’s stock market rally.  But with the Nasdaq and the S&P 500 each rising 7%-plus so far in 2024, some are questioning whether the stock market has crossed into bubble territory.  

While stocks have gotten expensive compared to historical valuation metrics, there are reasons to believe that prices could rise further from here.  For instance, total assets in money market funds have hit a record $6 trillion, increasing $1.2 trillion over the past year and nearly doubling over the last five.  A significant share of that money is likely to be looking for a home once the Federal Reserve starts cutting interest rates, which Mr. Market expects will begin this June.

And while surveys show a cheerful outlook prevails among many market participants, it doesn’t seem that the speculative mania that has accompanied so many market bubbles in the past has taken hold. 

Of course, the higher stocks rise, the farther they can fall.   And one piece of unwelcome news can change the direction of the stock market in a hurry.  But for now, the stock market is likely to drift higher so long as the economy and corporate profits continue to grow.

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