Week in Review (Signals, Sailing, & Spring Forward)

By Ryan O'Rourke on March 8, 2024

Happy Friday March 8th!

Stocks rise on Powell’s comments. Jobs are plentiful but the unemployment rate rises. Inflation expectations on the rise in advance of next week’s CPI report. According to DSG Advisors’ research, stocks returns are not (yet) historically extreme. Cole Brauer becomes the first American woman to sail around the world solo. Don’t forget to Spring Forward Sunday!

#1 – Weekly Market Recap – Stocks experienced a more volatile week as softer-than-expected data on the services sector of the economy pushed stocks lower Tuesday. Powell’s testimony that he believes the Federal Reserve is on track to deliver multiple interest rate cuts in 2024 helped stocks recover Wednesday and Thursday.

Stock markets closed Thursday afternoon little changed, with the S&P 500 up +0.4%, the Nasdaq flat, and the Dow Jones down -0.8%.

Stocks are slightly positive in early morning trading as investors digest a robust jobs report showing that the US economy added 275,000 jobs in February, much higher than the 200,000 expected. However, the unemployment rate increased to 3.9% on yearly basis, the highest level since January 2022.

With the March Federal Reserve meeting just two weeks away, next week brings an important inflation report as economists are forecasting consumer inflation (CPI) to have risen +0.4% in February, equating to a +3.1% annual inflation rate.

#2 – Extreme Momentum? – The +8.1% increase in the S&P 500 to start 2024, on the back of 2023’s +24% return, is causing investors to wonder if market returns are historically extreme.

As a data driven investment team, the analysts at DSG Advisors have been evaluating market returns over the past 5 years compared to returns all the way back to 1998 to determine if current markets have reached extreme levels.

As contained in our 2024 Market Outlook, we use Z-scores (measurement of standard deviations) to compare 5-year price momentum to historical averages.

Our research indicates that stock returns are not (yet) at extreme levels (which historically occur at +/- 2 standard deviation events). Statistically extreme levels should occur in roughly 5% of all observations.

As shown in the Technology sector chart below, since the start of 2023, technology stocks have risen approximately 80%. While that might seem extreme, as shown in the second price momentum chart, the 1-year price momentum of the technology sector currently sits 1.4 standard deviations above the average (dark line) and 0.6 standard deviations above the 6-month average (light line). This signals that while momentum is currently stronger than average, it is not yet in ‘extreme’ territory.

At DSG Advisors, we have performed this analysis for each of the eleven S&P 500 sectors as well as the Nasdaq and the Russell 2000 small cap index. We use this analysis to help us determine where to invest capital to enhance portfolio returns.

#3 – Inflation Expectations on the Rise – Inflation expectations are on the rise. Market-implied inflation expectations for the next 12 months reached 4% for the first time in almost two years. Inflation expectations, which were just 2.0% at the end of 2023, have begun to rise since the start of the year.

The price of gold, which investors use as an inflation hedge, has mirrored the rise in inflation expectations.

Rising inflation expectations makes the Federal Reserve’s next move on interest rates all the more challenging. Keeping interest rates at the currently elevated levels could slow the economy too much and push it into recession. Cutting interest rates could boost the economy further and reaccelerate inflation.

This morning’s economic data only make the Federal Reserve’s next move on interest rates more challenging as the US economy added significantly more jobs than expected in February, +275,000 versus an expectation of 200,000. Meanwhile, the unemployment rate increased to 3.9% from 3.7% in January.

The Federal Reserve has been guiding financial markets to expect three interest rate cuts in 2024. Next week’s CPI inflation report will be the news of the week as the Federal Reserve prepares for their second meeting of the year on March 20th.

#4 – Around the World in 130 Days – On Thursday, 29-year-old Cole Brauer became the first American woman to race solo nonstop around the world. Brauer and her 40-foot sailboat arrived in A Coruña, Spain, placing second in the Global Solo Challenge.

Brauer was the only woman in a field of more than a dozen sailors who competed in the Global Solo Challenge — a solo race spanning nearly 30,000 miles around the world. The competitors set sail last October in staggered starts from A Coruña to navigate around the globe.

The race took Brauer south along the west coast of Africa, around the Cape of Good Hope, then east towards Australia. From there she continued eastward rounding Cape Horn at the southern tip of South America before continuing northeast across the Atlantic Ocean back to Spain.

The voyage is dangerous even for a full crew of sailors. Brauer encountered treacherous 30-foot waves along the way that tossed her boat around. According to Marco Nannini, the race organizer, “Sailing solo means not just being a skipper, but a project manager. That means steering the vessel, making repairs, knowing the weather, and keeping yourself healthy.”

At 29-years-old, standing a mere 5-foot-2 and weighing only 100 pounds, some in the sport believed that due to her size and gender she wouldn’t be successful, but Brauer proved them wrong. “I push so much harder when someone’s like, ‘no, you can’t do that,’ or ‘you’re too small,” Brauer said. While she sailed alone, she kept in contact with her racing team using satellite communications. In addition, she frequently posted short video reels on Instagram and social media allowing her to connect with fans throughout her voyage.

Brauer is hoping that she will be an inspiration for even just one other girl who sees what she was able to accomplish and says ‘oh, I can do that, too!’

Source: AP News

#5 – Spring Forward – Don’t forget to Spring Forward on Sunday! Americans will lose an hour of valuable sleep this weekend as Daylight Savings Time (DST) kicks in across most of the country.

Participating states move the clocks forward an hour the second Sunday in March and DST doesn’t end until the first Sunday in November when the clocks Fall Back an hour.

Only two states don’t observe daylight savings time — Arizona and Hawaii. However, the Navajo Nation in Arizona does participate in daylight savings time, making it extra confusing if you’re traveling in AZ. In case you didn’t know, Federal law allows states not to observe DST, but the law also says that states aren’t allowed to stay on daylight time throughout the year.

Will the back-and-forth time changes ever go away? The Sunshine Protection Act – doing away with the semi-annual time changes and making DST the new permanent standard time, was unanimously approved by the US Senate in 2022. However, the bill wasn’t signed into law by the US House of Representatives, citing more pressing issues. Therefore, the bill hasn’t been signed into law by President Biden.

“The problem is that a lot of people say to me, ‘…we shouldn’t switch back and forth, we should just have standard or daylight saving,’ but then they disagree over which one to enact,’ Rep. Frank Pallone Jr. (D-NJ) told The Hill. So it appears that we’ll continue to Spring Forward and Fall Back…for now.