| April 11, 2024

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.

The Federal Reserve signaled that it will likely be appropriate to lower rates at some point this year, with some Fed officials 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.

The unemployment rate dropped to 3.8% in March, down from 3.9% in February, signaling a slightly stronger job market than expected by analysts. Concurrently, wage growth slowed in March to an annual growth rate of 4.1%, down from 5.9% two years ago. A slow down in wage growth can be good for companies looking to mitigate labor costs yet derogatory for employees and their spending power.

Three key economic indicators rose in the first quarter, gold, oil, and the U.S. dollar. Gold hit an all time high of over $2,300 per ounce, while oil (West Texas Intermediate) reached over $90 per barrel, both indicative of continuing inflationary pressures and global geopolitical tensions. The U.S. dollar also rose driven by a stable U.S. economy and by the demand for a secure currency influenced by tensions in Europe and the Middle East.

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 Continue 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 thorough 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

Average Tax Refund For 2024 Tax Season Larger Than Last Year - Tax Policy Update

The 2023 tax season, which began January 23, 2024, has so far seen over 90 million federal tax returns filed as of the end of March. The IRS tracks and monitors the number and status of returns in order to estimate tax revenue and filing timeliness. Refunds are also tracked, projecting the amount of funds owed to taxpayers. Through the end of March, there had been over 60 million refunds issued to taxpayers, with an average refund in the amount of $3,050. IRS data also reveals that the average refund so far this year is roughly 5% larger than it was for tax year 2022.

In tax year 2022, the Federal Government collected more than $4.9 trillion in total receipts, processed over 262 million returns and issued more than $641 billion in tax refunds. Budget estimates from the Federal Government, project an estimated $4.8 trillion in total receipts for tax year 2023.

Sources: IRS, Congressional Budget Office, Whitehouse.gov

Why Gasoline Prices Are Rising Faster Than Usual - Energy Overview

Various factors are contributing to sustained high gas prices, which are expected to add to price pressures heading into the summer months. Traditionally, gasoline prices move higher as vacation travelers hit the road during the summer months. Transportation companies, railroads, and airlines also see enhanced activity during the summer season.

This summer, however, may produce higher prices than usual, as continued supply constraints, shipping issues, and increased international demand for U.S. oil and gasoline driven by the Russian invasion of Ukraine the Middle East conflict. The EIA reported that the average price of a gallon of regular gasoline rose to over $3.50 per gallon in March nationally.

Rising gasoline prices can become a burden for both consumers and companies. Not only are consumers spending more of their income on fuel, companies also pass along the higher costs of fuel to consumers. Higher fuel prices tend to filter down to the consumer since the cost of food, transportation, and travel are all affected by rising fuel expenses.

There is also the prospect of lower fuel prices. Historically, rising fuel prices eventually hinder economic growth, thus slowing industrial and consumer activity and lessening demand for fuel. Many economists believe that a recession would also curtail demand for fuel, thus bringing fuel prices lower.

Sources: U.S. Energy Information Administration (EIA)

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

Some States Continue To Lose Workers After Pandemic - Labor Market Dynamics

The pandemic brought on dramatic and instrumental changes to employment and the labor markets, some of which may be substantially lasting. Work at home positions have become widely accepted and commonplace now, as have transient workers migrating from city to city, and state to state. Many companies today allow their employees to essentially work from anywhere, any city, any state, establishing a true virtual work environment.

Nearly five years after the pandemic, migration from various states has been consistent. California and New York combined, lost over half a million workers to other states from 2020 to 2024, while Texas took in one million new workers during the same period. Florida also saw a dramatic increase with over 750,000 new workers flooding into the state. Cost of living, taxes, and housing are among some of the reasons for the migrations.  As a result of the worker migrations, California has seen its unemployment rate rise to 5.3%, the highest in the nation, while New Jersey saw its unemployment rate hit 4.8%.

Sources: Department of Labor

**Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.