March 2024 Perspective

Mar. 1, 2024

What’s New

Another month, another new all-time high for major US equity indices. While the end result was more of the same compared to a number of previous months, the backdrop was noticeably different.

In many ways, February was a month of shifting expectations. Following a hot CPI print in mid-February, stocks temporarily pulled back as the market was forced to once again wrestle with the idea of inflation. It’s likely that bond markets had already caught on, as sovereign rates and inflation breakevens had been drifting higher to start the month.

Expectations for the Federal Reserve also saw a significant reset during the month of February. Coming into the month, the market had been pricing six cuts for 2024, with the first coming in May. We are now in a position where the market is pricing closer to three cuts for the year, with the first coming in June.

Despite the rise in yields, equity markets continued to drift higher, with the major indices returning:

  • S&P 500: 5.17%
  • Dow Jones Industrial Average: 2.22%
  • Nasdaq: 6.12%

What was interesting to note is that the rally has broadened out and become more reflective of a stronger economic environment. Rather than Information Technology continuing to lead the way, Industrials, Consumer Discretionary, and Materials were the strongest sectors during the month. It is also worth noting that the Russell 2000 and equal-weighted S&P 500 index—both of which are more reflective of economic activity—generated returns of 5.52% and 3.96%, respectively, during the month. The relative strength was also reflected in high yield bond spreads, which remain near multi-year lows despite the run up in Treasury yields.

The question, then, continues to be one of risk-reward in financial markets. With the economy remaining resilient and some of the strength we have seen in equity markets broadening out to other sectors, it is tempting to ignore the warning signs we continue to see on the economic side of the ledger. However, inflation is showing that there remain upside risks, and this is against a backdrop of an expensive equity market and spreads near the lows. We continue to believe that such an environment argues for a somewhat defensive, yet opportunistic approach to markets.

Our Perspective

We have been adamant that a soft landing is unlikely as we progress through the economic cycle. Historical evidence suggests that the Fed has never brought inflation down from the levels we’ve seen without causing significant economic hardship. Should the Fed begin cutting rates aggressively this year, we believe it is more likely than not that it will be in response to an adverse economic outcome or exogenous shock. Earnings would likely be hit hard by the economic slowdown driving the Fed to cut. However, the continued resiliency of the US economy and the downward trend in inflation has increased the odds of a more benign outcome.

Given the above, the market is likely going to have to reprice its outlook with higher yields, rising uncertainties, and weaker earnings. While the market is typically forward-looking, recessions tend not to be priced into the market until their arrival is imminent.

With that in mind, we are placing an emphasis on risk management and have adopted a defensive position strategy in our core portfolios.

Sector Insights: What Could Go Right in 2024?

2023 was an eventful year, and 2024 promises to be no less. So, what could go right this year?

Every sector has its bright spots, hear what they are directly from our analysts as they share opportunities emerging this year given the current market and economic environment – including in life sciences/healthcare, capital goods, fixed income, tech, services, and consumer goods.

Read the opportunities in: Sector Insights: What Could Go Right in 2024?

Our View

Economic Cycle The economy is in a late cycle, though it continues to prove incredibly resilient. The Fed hiked aggressively and we saw significant pain in industries including transport and manufacturing. However, the US consumer has remained strong. We believe that the lagged effect of monetary policy may start to be felt in other parts of the economy in the coming quarters.
Stock Market The US stock market has rebounded strongly off its October 2022 lows. Sentiment now appears stretched and valuations are not compelling. To date, market returns have been driven by multiple expansion. EBIT margins climbed to historical highs in the years following pandemic lockdowns; elevated input costs and weakening demand and pricing power are posing a risk to the ability of corporations to maintain earnings at their projected level. Returns will be harder to come by and stock selection will be increasingly important.
Bond Market Interest rates remain well off their lows, as the economy has remained resilient, and the market is weighing the dynamics of still-elevated core inflation and the potential for interest rates to remain higher for longer. Corporate spreads remain well contained, particularly considering the risks we see to the economy.
Important Issues on the Radar Inflation: While significantly lower than the 2022-high, factors including a resilient demand environment and wage increases threaten to keep core inflation elevated. Should this be the case, the Fed may remain tighter for longer.
China’s Economy: China has pivoted on the two key economic issues that acted as severe headwinds to growth over the last two years; however, economic growth appears to be stagnating and it will be critical to monitor the policy response in the coming months.

Indicates change Indicates no change

Source: Bloomberg

All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

This newsletter may contain factual business information concerning Manning & Napier, Inc. and is not intended for the use of investors or potential investors in Manning & Napier, Inc. It is not an offer to sell securities and it is not soliciting an offer to buy any securities of Manning & Napier, Inc.

The S&P 500 Index is an unmanaged, capitalization-weighted measure comprised of 500 leading U.S. companies to gauge U.S. large cap equities. The Index returns do not reflect any fees or expenses. Dividends are accounted for on a monthly basis. Index returns provided by Bloomberg. The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip U.S. stocks that are generally the leaders in their industry. Dividends are reinvested to reflect the actual performance of the underlying securities. The Index returns do not reflect any fees or expenses. Index returns provided by Bloomberg. The NASDAQ Composite Index is a broad-based capitalization-weighted index of domestic and international based common type stocks listed in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The NASDAQ Composite includes over 3,000 companies. The Index returns do not reflect any fees or expenses. Index returns provided by Bloomberg. The Russell 2000® Index is an unmanaged index that consists of 2,000 U.S. small-capitalization stocks. The Index returns are based on a market capitalization-weighted average of relative price changes of the component stocks plus dividends whose reinvestments are compounded daily. The Index returns do not reflect any fees or expenses. Index returns provided by Bloomberg. Index data referenced herein is the property of each index sponsor (London Stock Exchange Group plc and its group undertakings (Russell) and S&P Dow Jones Indices LLC, a division of S&P Global Inc., its affiliates (S&P), their affiliates ("Index Sponsors") and/or their third party suppliers and has been licensed for use by Manning & Napier. The Index Sponsors and their third party suppliers accept no liability in connection with its use. Data provided is not a representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. For additional disclosure information, please see:

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