What We Are Watching This Week
- Durable-goods orders
- US Consumer Confidence
- Personal Income and spending
- Personal Consumption Index (PCE)
Highlights From Last Week
- Housing Starts
- Federal Reserve Opening Market Committee Rate Announcement
- Canadian CPI
- US Leading Economic Indicators
North American stocks rallied during the week, propelling the S&P 500 Index and the Nasdaq Composite to new highs, following indications from Federal Reserve policymakers of potential interest rate cuts later in the year. Communication services and technology sectors led the gains, with NVIDIA reaching a record high and nearing a market capitalization of $2.4 trillion. Reports of a possible partnership between Apple and Google parent Alphabet in AI tools further boosted investor sentiment. However, the healthcare and real estate sectors underperformed. The STOXX Europe 600 Index closed near a record high in Europe, driven by dovish signals from central banks. While Germany’s DAX and Italy’s FTSE MIB gained, France’s CAC 40 Index dipped, and the UK’s FTSE 100 surged.
In February, U.S. housing starts exceeded expectations, rising by 10.7% month-on-month to reach 1.52 million annualized units, surpassing the consensus forecast of 1.44 million. Both single-family and multi-family segments showed strength, with single-family starts increasing by 11.6% and multi-family starts by 8.3%. Residential permits also rose by 2.0%, with single-family permits marking fourteen consecutive months of growth. Regional variations were observed, with declines in the Northeast and West but gains in the Midwest and South. This robust growth suggests a recovery in both single-family and multi-family sectors, likely influenced by anticipation of interest rate cuts and strong buyer demand amidst limited existing home supply. Looking ahead, building activity is expected to remain strong throughout the year, supported by stable economic growth and favorable financing conditions.1
February saw a surprise downtick in inflation, with headline CPI slipping to 2.8% year-on-year (y/y), contrary to expectations of an increase. One contributing factor was the softer inflation observed in grocery stores, where prices rose by 2.4% y/y, a decrease from January’s 3.4%. This marked the first instance since 2021 where grocery inflation fell below headline inflation. Additionally, gasoline prices reversed their trend, increasing by 0.8% y/y in February compared to a 4% y/y decline in January. Meanwhile, shelter inflation continued its upward trajectory, rising by 6.5% y/y, with rent and overall housing costs increasing by 8.2% y/y and 6.7% y/y, respectively. Cellular and internet services also contributed to the subdued inflation, with new cell phone plans dropping by 26.5% y/y and internet access decreasing by 13.2% y/y in February. The Bank of Canada’s preferred “core” inflation measures also decreased slightly, averaging at 3.2% y/y in February compared to 3.4% in January. The February inflation report brings some positive news for Canadians after a period of stagnation in the latter part of last year. This marks two consecutive months of improvement in the Bank of Canada’s key core inflation indicators. However, the battle against inflation is not yet won, and we anticipate that the Bank of Canada will maintain the overnight rate at its current level until July, as outlined in our latest forecast.2
On Wednesday, the US Federal Reserve decided to maintain its current key interest rate despite concerns about persistent inflation, keeping it at a 23-year high. The Fed remains committed to combating inflation, despite expectations for rate cuts. Economic forecasts for 2024 have been revised upwards, projecting a 2.1% economic growth and a year-end inflation figure of 2.4%, with core inflation expected to dip slightly to 2.6%. Recent economic indicators show robust expansion, with strong job gains and a low unemployment rate, although inflation remains relatively high. The Committee aims to achieve maximum employment and steady 2% inflation over the long term, with risks gradually balancing. The Committee will carefully consider adjustments to the federal funds rate target range based on incoming data and evolving economic conditions. Additionally, it plans to continue reducing holdings of Treasury securities and mortgage-backed securities to restore inflation to the 2% target. The Committee will monitor incoming data closely and stands ready to adjust policy as necessary to achieve its goals, considering various factors including labor market conditions and inflation expectations. Economists have differing views on whether recent high inflation readings indicate a temporary fluctuation or a longer-term challenge in reaching the Fed’s 2% target.3
In the week ending March 16, The US Labor Department reported that the seasonally adjusted initial claims decreased by 2,000 to 210,000, with the previous week’s figure revised by 3,000 to 212,000. The 4-week moving average increased by 2,500 to 211,250, with the previous week’s average revised up by 750 to 208,750. The total number of continued weeks claimed for benefits across all programs for the week ending March 2 decreased by 36,850 to 2,107,026, compared to 1,938,756 claims filed in the same week in 2023. 4
On Thursday, the S&P reported that S&P Global Flash US Manufacturing PMI surged to 52.5 in March from 52.2 in February, significantly improving the sector’s health. Business conditions have strengthened over three consecutive months, supported by increased output and employment. Supplier delivery times continued to recover, albeit slightly less than in February. Despite higher manufacturing production, firms reduced purchasing activity in March after a marginal increase in February. This was attributed to inventories being built up sufficiently to support current workloads, leading to efforts to decrease stocks. Both purchases and finished goods stocks decreased notably, with the sharpest decline in purchases since November. Additionally, the S&P Global US Services PMI fell to 51.7 in March from 52.3 in February, indicating a loss of momentum in the service sector. This was accompanied by softened new business growth, a decline in new business from abroad, and increased inflationary pressures amidst rising wages. However, business confidence improved, linked to planned marketing activity.5
In February, the leading indicators for the economy rose for the first time in two years, signaling continued growth and a likely avoidance of recession in the United States as reported by the Conference Board. The index of leading economic indicators increased by 0.1%, marking its first uptick since February 2022, contrary to economists’ expectations of a 0.1% decline. While historically, a negative index has preceded recessions, the post-pandemic economic landscape has deviated from traditional patterns. Despite higher interest rates, the economy is expanding at an above-average pace, with little indication of an imminent recession. However, the Federal Reserve’s decision on interest rates, expected later this year, could influence economic performance. Looking ahead, while February’s increase suggests growth, there are still challenges ahead, including rising consumer debt and elevated interest rates, which may slow GDP growth over the second to third quarter.6
In February, US home sales surged as buyers eagerly purchased from a wave of new listings, marking the largest increase in sales activity since February 2023. According to the National Association of Realtors, sales of previously owned homes rose by 9.5% to an annualized rate of 4.38 million, surpassing Wall Street expectations of a 3.95 million pace. However, compared to February 2023, home sales were down by 3.3%. The median price for existing homes increased by 5.7% to $384,500, reaching an all-time high compared to previous February readings, albeit still below the peak in June 2022. Around 20% of properties were sold above list price, with total listings rising by 10.3% to 1.07 million units. Homes remained on the market for an average of 38 days. Sales were particularly robust in the West, with a 16.4% increase and a median price of $593,000. All-cash buyers represented 33% of sales, the highest share since March 2011, while individual investors or second-home buyers accounted for 21% of sales. Approximately 26% of homes were sold to first-time buyers. Despite the increase in sales, the housing market is expected to remain subdued until the lock-in effect eases further, with homeowners holding onto ultra-low mortgage rates disincentivized to sell unless necessary. However, there are early signs of a thawing, with increased listings reported by brokerages and a 10.3% annual increase in total housing inventory according to NAR data.7
| WK | Year to Date | |
| Dow | 1.97% | 4.74% |
| S&P500 | 2.29% | 9.74% |
| Nasdaq | 2.85% | 9.44% |
| S&P400 Mid-cap | 2.31% | 7.54% |
| Russell | 1.60% | 2.22% |
| TSX | 0.60% | 4.90% |
| Oil | 0.30% | 12.80% |
- https://www.census.gov/construction/nrc/pdf/newresconst.pdf
- https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240319a-eng.htm?indid=3665-1&indgeo=0
- https://www.federalreserve.gov/monetarypolicy/files/monetary20240320a1.pdf
- https://www.dol.gov/ui/data.pdf
- https://www.pmi.spglobal.com/Public/Home/PressRelease/949f155d1bf6438bb2bda4e3537d2f75
- https://www.conference-board.org/topics/us-leading-indicators
- https://www.nar.realtor/newsroom/existing-home-sales-vaulted-9-5-in-february-largest-monthly-increase-in-a-year
Important Information:
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.
Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.
The opinions and information contained in this article are those of Sightline Wealth Management (“Sightline”) as of the date of this article and are subject to change without notice. Sightline endeavors to ensure that the content has been compiled from sources that we believe to be reliable. The information is not meant to be used as the primary basis of investment decisions and should not be constructed as advice. Each investor should obtain independent advice before making any investment decisions.