This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
Household Income Lags
FX Daily
ING
Feb. 29: U.S. PCE figures released Feb. 29 confirmed what most had expected: Inflation stayed too hot in January. However, as discussed by our U.S. economist, there are still hopes that the disinflationary process will resume in time for a June rate cut by the Federal Reserve. Personal income and spending figures came in strong, too, but real household disposable income didn’t grow in January. We must remember how crucial this is to fuel real consumer spending now that excess savings have almost entirely run down. With the spending push likely to ease, inflation should come down more steadily.
Francesco Pesole
Passive Turns Aggressive
Market Update
Cresset
Feb. 29: Assets in passively managed funds surpassed those in actively managed funds for the first time ever in January 2024, marking a milestone in the decades-long rise of index investing. The total for January was $13.3 trillion in passive U.S. mutual funds and ETFs versus $13.2 trillion in active mutual funds.
The ascent of passive strategies has raised some concerns about their impact on market efficiency, price discovery, and volatility. Recent research suggests passive investing has made stocks less sensitive to news and events, increased volatility, and led to less efficient markets overall. This could undermine the premise behind passive funds if indexing becomes so widespread that price signals get distorted.
While the rise of passive strategies warrants continued monitoring, their benefits for most investors still outweigh their challenges. Passive funds offer investors simple, diversified market exposure at virtually unbeatable costs. While the heyday for traditional active stock-picking may be over, shifts caused by the rise of passive investing look likely to unlock new opportunities for us in public and private investments.
Jack Ablin
Commodities Have the Blues
Insights
Heritage Capital
Feb. 29: Commodity markets remain outside the velvet ropes. Prices of most major commodities aren’t exactly weak, but are mostly below their levels of a couple of years ago and so have exhibited lousy relative performance over this period. In large part this can be blamed on the weakness of the Chinese financial markets, which has sapped some of the traditional speculative flows into the commodity complex from that part of the world.
Mostly, though, we would blame indifference, and the use of the commodity complex and associated sectors as a relentless source of funds. This continues to be most obviously true of precious metals, especially gold, which has established itself above $2,000 [an ounce] on a medium-term basis for the first time in its history ). But [gold] ETF holdings continued to decline during the vast majority of trading sessions, hitting a new four-year low recently at 82.54 million ounces.
Michael Shaoul, Timothy Brackett
Consumer Confidence Falls
AM Charts
BMO Capital Markets
Feb. 27: U.S. consumers had become increasingly confident in recent months, but that shifted unexpectedly in February with the Conference Board’s index falling 4.2 points to 106.7. The first drop since October was broad-based, with the present situation index declining 7.7 points and the future expectations gauge falling a much more modest 1.7 points. The written responses indicated that while consumers are still worried about inflation, they are increasingly concerned about the labor market and the dysfunctional political situation.
Confidence fell for most income groups except for those earning less than $15,000 and more than $125,000. Confidence deteriorated for consumers under the age of 35 and those 55 and over, while it improved marginally for those aged 35 to 54. Finally, median inflation expectations over the next 12 months edged down to 4.2% and are at the lowest since March 2020.
Jay Hawkins
No Rate Cuts Until June
U.S. Economics Weekly Update
Goldman Sachs
Feb. 26: Recent comments from Fed officials and the minutes to the January FOMC meeting suggest that the first interest-rate cut is unlikely to come as early as May. In particular, Governor Waller’s comment that “delaying rate cuts by a few months” is unlikely to hurt the economy hints at a delay beyond the May 1 meeting.
Fed officials seem to have shifted their thinking on two issues: 1) They have become less concerned about the risk of keeping the funds rate too high for too long, and appear to have instead shifted toward our view that the growth hit from rate hikes is behind us; and 2) They now appear to want quite definitive evidence that inflation will approach 2% before cutting.
We dropped our forecast of a May cut and now expect four cuts total in 2024 (versus five previously) in June, July, September, and December, followed by four more cuts in 2025 (versus three cuts previously), to the same terminal rate of 3.25-3.5%.
David Mericle
A/D Line Hits a Peak
Insights
Heritage Capital
Feb. 26: While so many pundits have been crying about the narrowness of the rally, the NYSE Advance/Decline Line just hit an all-time high. This is absolutely not the kind of action you see if a bull market is peaking or ending. Sorry, bears. The anticipated decline will be one to buy.
If you accuse me of cherry-picking one indicator, here is another: The percentage of stocks in a long-term uptrend is now at 65%. While I would like to see the number at 70% or above, this is a far cry from the 57% seen at the last bull-market peak in January 2022.
Paul Schatz
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