Market Report - First Quarter 2024

Paul Hancock, CFP®    April 6, 2024

STOCK MARKET INDEX - YTD RETURNS

S&P 500 Index +10.6%

Nasdaq 100 +9.1%

Total US Stock Market +5.2%

Small Cap US Stocks +5.2%

Total Global Stock Market +8.1%

International Developed +5.7%

Emerging Market Stocks +2.1%

Stocks ripped higher in the first quarter aided by increasing global liquidity and talk of future easing by the Federal Reserve. The US stock market ended the quarter at all-time highs and continues to be held up by a smaller concentration of growth and technology stocks. Small-cap stocks rallied near the end of the quarter to close the gap between their larger counterparts. Global liquidity(i) and stocks remain highly correlated as evidenced in the chart below. This chart plots global stocks represented by the MSCI All Cap World Index with global liquidity. This is a bull market, there is no doubting this fact. Given many Central Banks talk of easing rates and adding liquidity, the bull market should continue to have legs. However, a near-term pullback in stocks, especially in the United States, would not be surprising given strong recent returns. 

Source: CrossBorder Capital

BONDS - RATE / YTD CHANGE

3-Month US Treasury Bill = 5.37% (+1 bp)

2-Year US Treasury = 4.63% (+38 bp)

10-Year US Treasury = 4.21% (+34 bp)

30-Year US Treasury = 4.35% (+33 bp)

30-Year Mortgage Rate = 6.79% (+73 bp)

Barclays US Aggregate Bond Index = -0.78%

Barclays Municipal Bond Index = -0.32%

The US bond market ended the quarter down 0.78%. Treasuries edged higher across the curve. The US Treasury is flooding the market with new supply of US Treasury debt across the curve driving bond yields higher. The US fiscal authorities are showing no constraint which should pump more debt into the market amid a difficult supply/demand dynamic. In other words, the number of willing buyers of US Treasury debt continues to be stretched. The weekly 30-year mortgage stands at 6.79%. The spread between the 30-year mortgage rate and the 10-year US treasury bond yield is in recessionary territory (see chart below). I expect the 10-year treasury to move higher over the coming months to close this gap. Mortgage-backed bonds tell a similar story as the spread between mortgage-back securities and treasuries is historically high. This is negative for bonds. Short-term US treasury bills continue to be a great place for short-term assets. If the Fed cuts interest rates, this could marginally change. However, given the performance of risk assets (ie. stocks), major rate cuts are not on the horizon.

Source: Yardeni Research

REAL ASSETS & CURRENCIES: $ PRICE / YTD RETURNS

Gold ($/oz) = $2,232 (+6.5%)

Silver ($/oz) = $25.01 (+3.2%)

Bitcoin ($/coin) = $71,285 (+64.3%)

Oil ($/barrel) = $83.11 (+16.7%)

Bloomberg Commodity Index = +0.9%

Dow Jones Real Estate Index = +3.2%

US Dollar Index = 104.5 (+3.2%)

Gold finished the quarter at an all-time high vs. the US Dollar. The technical picture for gold as seen below is very favorable for further upside. Strong bullion buying from the East and Global Central Banks helped gold move to the upside. Global Central Banks continue to diversify their reserves into gold bullion and away from fiat currencies such as the US Dollar. This is a trend that has been forming since 2014 but certainly picked up steam since 2020. With the outlook for weaker Western fiscal positions, it would not be surprising to see gold continue to rise in the coming years. This is much more of a dollar depreciation story than anything else. A weaker US dollar aids global growth.

Source: Macleod Finance

ECONOMIC & LIQUIDITY MEASURES: $ AMOUNT / % CHANGE

Global Liquidity = $171.12 trillion

US M2 Money Supply = $20.78 trillion

Global M2 Money Supply = $87.26 trillion

US Total Debt Outstanding = $34.47 trillion

US Debt/GDP = 121.6%

Consumer Price Inflation (CPI) = 3.2% yoy

Volatility Index (VIX) = 13.01 (-4.5%)

Global liquidity remained strong this quarter ending at $171.12 trillion. Consumer price inflation eased, while the Federal Reserve and the People’s Bank of China continued to provide liquidity to markets aiding risk assets. US government debt increased unabated with Debt/GDP now over 120%. Interest on our debt is set to exceed $1 trillion this year. 

Source: CrossBorder Capital

DISCLOSURES & INDEX DESCRIPTIONS

For disclosures and index definitions please click here.

(i) Global Liquidity is a source of funding that measures the gross flows of credit and international capital feeding through the world’s banking systems and collateral-based wholesale money markets. It is determined by the balance sheet capacity of all credit providers and represents the private sector’s ability to access cash through savings and credit. Capital Wars, by Michael J. Howell, Palgrave Macmillan