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Last Month in the Markets: March 1 – 29, 2024
What happened in Q1?
Despite its 31-day length, March 2024 had just 20 trading days in Toronto and New York. Additionally, the first quarter (Q1) effectively concluded at end of day on March 28. In 2025, Good Friday, will fall on April 18, three weeks later than this year.
The performance for Q1 is reflected as “YTD +/-“ in the grid above. North American equity indexes continued their rally by gaining 5.5% to 10% in Q1. The positivity of the themes and influences for equities have continued throughout the quarter:
- Interest rate increases and tighter monetary policy that began in March 2022 have tempered inflation and is moving it back toward the 2% goal desired by the Bank of Canada, U.S. Federal Reserve and European Central Bank (ECB).
- High expectations that interest rates will be lowered by central banks this summer.
- A soft landing is anticipated by many, where inflation is tamed and a recession is avoided.
- Employment continues to be strong despite tighter monetary policy over the last 2 years.
The strong performance extends beyond North America as global equities, represented by the All-Country World Investable Market Index (ACWI), have delivered nearly 8% for Q1. This benchmark includes 23 developed markets and 24 emerging markets.
Several announcements contributed to the approximately 2 to 4 per cent rise in equity indexes last month:
1. February 29
The month began positively for equity investors after the U.S. Bureau of Economic Analysis released the Personal Consumption Expenditures (PCE) price index, which is the Federal Reserve’s preferred inflation indicator. Inflation for January broadly met expectations, and the lack of upside surprise made little news, while the major indexes continued their upward trajectory. As the month began the Dow Jones Industrial Average, S&P 500 and NASDAQ-100 had gained approximately 20%, 30% and 40% over the past year. BEA PCE release
2. March 6
In widely expected news, the Bank of Canada held its policy interest rate unchanged. The overnight rate remains at 5%, the Bank Rate is 5.25%, and the deposit rate is 5%. In January, the Canadian Consumer Price Index (CPI) was 2.9%. Tiff Macklem, Bank of Canada Governor stated, “Looking ahead, we expect inflation will be close to 3% through the middle of this year before easing in the second half … but it’s too early to loosen the restrictive policy that has gotten us this far.” BoC release Boc Statement CBC and BoC
3. March 7
The ECB mirrored the Bank of Canada’s decision to keep policy interest rates unchanged. ECB staff project inflation to average 2.3% in 2024, fall to 2% in 2025 and again to 1.9% in 2026. ECB release
4. March 8
February’s 275,000 additional jobs came in above the average monthly gain of 230,000 over the prior 12 months, according to the U.S. Bureau of Labor Statistics. Job gains were concentrated in health care, government, food services and drinking places, social assistance and transportation and warehousing. The unemployment rate rose 0.2% to 3.9% as 334,000 more job seekers were unsuccessful. The total number of unemployed people rose to 6.5 million, up by 500,000 from a year earlier. BLS release CNBC and jobs
5. March 12
The Bureau of Labor Statistics reported that the U.S. Consumer Price Index rose 0.4% in February, up from January’s 0.3% rise. On a year-over-year basis, consumer prices have risen 3.2%. Shelter and gasoline contributed more than 60% of February’s one-month price inflation. BLS CPI release
6. March 14
The U.S. Producer Price Index (PPI) for final demand rose 0.6% in February after increasing 0.3% in January and decreasing 0.1% in December. On an unadjusted basis, the final demand index rose 1.6% over the past year, which is the largest increase since September 2023 when the same metric rose 1.8%. Much of the increase can be traced to the rise of the price of gasoline. BLS PPI release
7. March 19
Domestically, Canadian consumer inflation continues to moderate as the Consumer Price Index (CPI) rose 2.8% on a year-over-year basis in February, down from 2.9% in January. Groceries contributed to the small decline, while gasoline prices offset the dip after rising 0.8% for the month. The on-going slowing of inflation is positive news for consumers and, eventually, borrowers since interest rates were raised to temper and reduce price increases. The Bank of Canada has not indicated the timing of rate reductions. StatsCan release CBC and BoC
8. March 20
Two weeks after the Bank of Canada made its monetary policy announcement, the Federal Reserve also kept its rates unchanged. The Fed released its quarterly Summary of Economic Projections (SEP) that indicate interest rates are expected to be lowered in 2024, 2025 and 2026. Fed release, SEP, and press conf
9. March 29
U.S. Core PCE, which excludes food and energy, came in at 2.8% year-over-year for February. Annualized inflation is down slightly from January and is at its lowest level in nearly three years. The long-term goal of the Federal Reserve is an average of 2% for core PCE, but it has been more than three years since inflation was at the target level. The Fed’s next interest rate announcement will occur on May 1, when rates are expected to be held unchanged again. The earliest date that an interest rate reduction is anticipated is June 12 according to CME’s FedWatch tool. BEA’s PCE release CNBC and PCE.
What’s ahead for April and beyond?
As we emerge from almost two years of elevated inflation, the path of monetary policy continues to heavily influence capital markets for the near future. Currently, interest rates are restricting economic growth by slowing demand, and thereby lowering demand-driven price inflation.
One of the major concerns in Canada is that reducing interest rates too soon could overheat the spring housing market, and further raise and extend on-going inflation. Additionally, inflation and its predictability have not yet reached levels to compel the Bank of Canada to start cutting rates. In addition, we will be heavily influenced by U.S. monetary policy which is predicted to leave rates unchanged until June or July. CME FedWatch tool CBC and BoC rates BoC press conf excerpt BoC and housing
