US Market Review: Top Sectors to invest!
Q1 2024 Ending.
As we head into last week of March - incidentally end Q1 2024; let’s review what have transpired in the week of March 18 to 22.
The most important event of the week was US central bank’s Federal Open Market Committee (FOMC) meeting on Mar 19-20, to “finalize” US monetary policy’s direction.
2024 FOMC - 2nd Meeting Summary.
As expected, US central bank kept interest status quo (5.25% - 5.5%).
It released an updated "dot plot" with 3 rate cuts (still) expected in 2024.
US Federal Reserves - latest Dot Plot
FOMC sees the fed funds rate gradually heading to 3.1% by 2026, indicating that 2024 is likely the start of a multiyear rate-cutting cycle. (see above)
*Note: This was slightly higher than December dot plot, that showed fed funds rate falling to 2.9% in 2026.
Fed’s chair Mr Powell dovish tone during press conference proved to be stablizing; especially when he said “… the Fed sees inflation coming gradually down to 2% on a sometimes-bumpy path.“
Central Bank on US Economy.
The Fed upgraded its outlook on US economic growth with the "soft landing" narrative largely intact. (see above)
December 2023’s forecast showed that US’s real GDP growth may soften to 1.4% in 2024, down from 2.5% in 2023, before gradually returning to 1.9% by 2026.
Latest March 2024 forecast points to GDP growth of 2.1% in 2024, followed by 2.0% growth rates in 2025 and 2026.
Based on Mr Powell press conference’s remarks, "The economy is strong, the labour market is strong, and inflation has come way down."
The Fed also sees unemployment rate rising higher to 4.0% in 2024, up slightly from 3.9% currently.
Fed’s Quantitative Tightening (QT) exercise.
During the press conference, Mr Powell also spoke of the Fed’s intention to slow the pace of its quantitative tightening (QT) exercise, soon.
The Fed has reduced the size of its overall holdings from a peak of around $9 Trillion (April 2022) to now $7.5 Trillion. (see above)
It achieved this by allowing around monthly $95 Billion in Treasuries & Mortgage bonds to expire and not be replaced.
Unfortunately, Mr Powell did not specify the time, when the pace of QT will slow?
Quarterly earnings - Next week.
JP Morgan Asset Management’s summary:
Q4 2023 earnings reporting is coming to a close; with a handful of companies left. (see above)
Final estimate for collective operating earnings per share (EPS) is $53.91.
This represents YoY earnings growth of 7.0% and QoQ growth of 3.2% respectively.
Corporate profits ended 2023 on a high note, as economic activity remained resilient.
Downbeat forward guidance from respective Management team could weigh on consensus estimates for earnings growth in 2024.
Will know soon as Q1 2024 earnings reporting will commence !
Besides that, official reports that could frazzle Wall Street next week:
CB’s Consumer Confidence (March 2024) - Tue, 26 Mar 2024.
US Q4 2023 GDP 2nd estimates - Thu, 28 Mar 2024.
US Personal Consumption Expenditure (PCE-Feb 2024) - Fri, 29 Mar 2024.
Mr Powell speech at the Macroeconomics and Monetary Policy Conference - Fri, 29 Mar 2024.
Where & What to invest ?
Strongest sectors.
(1) For the week:
Energy sector - best performing with +3.8% gain. $Exxon Mobil(XOM)$
Materials sector - next with +1.6% gain.
Communication services & Financial sectors - tied for 3rd with +0.5% gain. $Alphabet(GOOG)$ , $JPMorgan Chase(JPM)$
(2) Year to date:
Communication services sector - tops with a +11.4% gain.
Technology sector - #2 with +10.9% gain. $NVIDIA Corp(NVDA)$
Energy sector - #3 with +9.3% gain.
Weakest sectors:
(1) For the week:
Real estates sector - topped with -2.8% fall.
Consumer discretionary sector - next with -1.2% fall.
Healthcare sector - round up top 3 with -0.7% fall.
(2) Year to date:
Real estates sector - still weakest with -2.5% decline.
Utilities sector - next with +0.2% gain.
Consumer discretionary sector - third ytd weakest with +1.4% gain.
My viewpoints : (mine & mine only)
Referring to the revised “Dot plot” chart, it could be inferred that the Fed does not see fed funds rate returning to the zero range (in the period following the 2008 financial crisis).
This directly implies that long-term Treasury yields may remain elevated versus the post-crisis period.
Investors may see bonds continue to play a meaningful role in portfolios, especially those seeking fixed income.
Although QT may not have a direct & immediate impact as interest cut, a shift in QT slow down and interest cut will have a policy-easing effect that will be welcomed by Wall Street and retail investors.
With interest cut “on the card” — time to research on Real Estate stocks?
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