Notes Along the Path: Market Update for Week 13

Gordon Achtermann |

Market Recap


The S&P 500 index edged up 0.4% this week to a fresh record close as the market benchmark wrapped up its strongest Q1 in five years.

The S&P 500 ended Thursday's session at 5,254.35, up 10% from the end of 2023. This is the largest percentage increase the index has achieved in the first quarter of any year since a 13% rally in 2019. Thursday marks the end of the trading quarter as US stock markets will be closed for the Good Friday holiday.

The quarter's gains have come amid corporate earnings and economic data that were mostly above forecasts, boosting expectations that the Federal Reserve's policy-setting committee will start cutting interest rates this year. At a meeting last week, a narrow majority of Fed officials reaffirmed projections for three rate cuts this year.

The latest better-than-expected data came on Thursday as revised gross domestic product for Q4 grew at a 3.4% annualized rate, up from estimates for growth of 3.2%. The University of Michigan's consumer sentiment index was revised higher to 79.4 for March, surpassing the 76.5 reading expected in a survey compiled by Bloomberg.

February's personal consumption expenditures index is due Friday, but with exchanges closed for the holiday, reactions to the closely watched inflation reading will be delayed until markets reopen on Monday.

Though investors appeared to be trading cautiously ahead of the inflation report, all but two sectors posted weekly gains. Utilities led the advance, up 2.8%, followed by increases of 2.2% each in energy and real estate. Financials, materials, health care, consumer staples, consumer discretionary and industrials also rose.

The utilities sector's gainers included Constellation Energy (CEG) and Public Service Enterprise Group (PEG) as analysts at Morgan Stanley raised their price targets on both companies' shares while maintaining their investment ratings at overweight. Constellation Energy's shares rose 3.7% on the week while Public Service Enterprise Group's shares climbed 2.7%.

The energy sector's climb came as crude oil futures also rose. Gainers included EQT Corp. (EQT), which rose 7.9%, and ConocoPhillips (COP), up 3.5%.

The two sectors in the red were technology, down 1.3%, and communication services, down 0.8%. The declines came after the sectors were the strongest performers on a percentage basis last week.

The technology sector's decliners included shares of Oracle (ORCL), which slipped 1.7%. A Bloomberg report said South Africa's Special Investigation Unit asked the National Treasury to prohibit Oracle from doing business with the government over what it says is a flawed tender.


Bond Market Update

Yields on longer-duration Treasury bonds moved higher while short-dated yields declined as traders reacted to an inflation report and commentary from Federal Reserve Chair Jerome Powell from Friday.

Bond markets were driven by a delayed reaction to Friday’s PCE Price Index, the Fed’s preferred inflation gauge, which showed core prices rising by less than economists had expected in February.

Core prices, which strip out volatile food and gas prices and are closely watched by the Fed, rose by 0.3% in February, while the 12-month rate dipped to 2.8% from 2.9% in January.

During an interview on Friday, Fed Chairman Jerome Powell acknowledged that the latest batch of inflation data fit with the central bank’s expectations. He also said that the central bank would move to cut interest rates soon, provided inflation continues to slow.

Taken together, the inflation data and Fed commentary helped firm up traders’ expectations for a June rate cut, which caused the yield curve to steepen.

Typically, short-term rates are higher than long-term rates, but the yield curve has been inverted for nearly two years. Any steepening is a sign that the relationship between short- and long-dated yields is moving closer to normal.


Up Next

Q2 kicks off next week with reports on February construction spending, February factory orders, and March US auto sales. Investors, however, will likely be heavily focused on March employment data due later in the week.


All the Best!

Gordon Achtermann, CFP®