Macro Overview

A stronger then anticipated jobs report reduced chances of a Fed rate cut in June as projected by analysts. Strong labor dynamics tend to foster underlying inflation for longer periods of time, thus influencing the Fed’s decision on rate decreases. Yields on shorter term U.S. Treasury bonds rose in March as expectations for a spring or summer Fed rate cut dissipated.

Fewer Fed officials are expecting at least three rate reductions in 2024. Markets were anticipating the first rate cut to have occurred in March, yet did not materialize due to the Fed’s concern surrounding continued inflationary pressures.

Inflation angst affected markets in March as inflation remained a concern, hindering the Fed from executing a rate cut which had been expected earlier in the year. Over the past year, prices rose the most for transportation services, eating out, and housing. Stubbornly high prices on certain goods and services have stalled any immediate efforts by the Fed to commence its rate reduction strategy.

A number of central banks worldwide are expected to cut rates starting this summer, before the Fed embarks on its rate reduction plans. Slower economic growth and lessening inflationary pressures are prompting lower rates throughout Europe in order to sustain economic momentum. The European Central Bank, the central banks of England, Canada, Australia, New Zealand, and Switzerland are all anticipated to begin lowering rates this summer and through the end of the year.

The Baltimore bridge collapse highlights the fragility of the nation’s infrastructure and the need for proactive contingency planning and maintaining diversified routing options. A critical component of the nation’s shipping transit, the Baltimore Port is the largest U.S. port by volume in handling farm, construction machinery, and agricultural products. It is also the busiest U.S. port for automobile shipments, moving more than 750,000 vehicles in 2023, according to data from the Maryland Port Administration.

Florida passed a law this past month that prohibits minors under the age of 14 from having social-media accounts, regardless of parental consent. The legislation is aimed at curbing social-media access for minors and requires social-media platforms to cancel accounts and delete all content on the request of parents and minors. The law is set to become effective and enforceable on January 1, 2025. Should other states adopt similar restrictions, the impact on social-media platforms may pose a challenge.

Shrinkflation, a term being used more frequently in the press, is when companies sell a smaller or lesser amount of a product, but for the same price. The dynamic has become common from food products to cars, where consumers are getting less yet still spending the same. Higher production costs, including raw materials and labor, have forced companies to either raise prices or shrink product portions in order to maintain profitable margins.

Sources: Maryland Port Administration, ECB, Federal Reserve, Labor Dept., EuroStat, U.S. Treasury

Equities Continued Their Advance – Domestic Equity Markets

Many analysts believe that the current equity market is being driven by price momentum rather than earnings expansion. This is a scenario where rising prices fuel additional buying even though earnings may not substantiate it.

The energy and utility sectors were the advancers in March as fuel, natural gas, and electrical costs rose. Technology, real estate and consumer discretionary were sectors that underperformed in March, indicative of a reversal from prior performances this year.

Major international and domestic equity indices are positive for the year through the end of March, lifting the value of equities globally. A strong dollar has also contributed to market dynamics as U.S. exports have become more expensive for consumers in other countries.

Sources: Dow Jones, S&P, Bloomberg

Rates Remain Stubborn – Fixed Income Overview

Inflationary pressures and better than expected employment data, pushed rates slightly higher in March, persuading the Fed to hold off on its rate reduction strategy. Short term rates rose as expectations for a spring or early summer rate reduction diminished. Estimates are that the Fed will eventually begin reducing rates towards the fall, contingent on forthcoming economic and labor data.

Rates on a 30 year average conforming mortgage ended March at 6.79%, while the average rate on a new auto loan settled at 8.57% for a four year term. Historically, consumer loan interest rates decline as the Fed initiates a rate reduction strategy.

Sources: Federal Reserve Bank of St. Louis, Treasury Dept., FreddieMac

Strong U.S Dollar Prompts Americans To Travel Overseas – Foreign Exchange Update

A strong U.S. dollar is becoming a decisive factor for U.S. travelers heading overseas. Up nearly 3.5% year to date, the surging U.S. dollar is expected to maintain its value as demand for the greenback remains enduring. When traveling to other countries, an elevated U.S. dollar versus other country currencies, can make a European trip that much less costly. As of the end of March, the Euro is down nearly 8% versus the U.S. dollar, making travel to any Euro denominated country cheaper than the summer of 2021.

Here at home, the strengthening dollar has also made imported goods into the United States more affordable, which become less expensive for American consumers as the dollar rises. These lower import prices help mitigate inflation in the U.S. allowing consumers to spend less on certain goods yet spend more on leisure and travel. (Sources: https://fred.stlouisfed.org/, Bloomberg, Commerce Department)