The FCMS Investment Committee is pleased to share the latest insights on the current financial market and economic developments.

Market Perspectives

Here are the top things from our FCMS Investment Committee on current financial markets and economic developments:

1. 1. Small-Caps Benefit and a Cap Off to a Positive Quarter for Equity Markets

      Rotation was the story last week as we capped off a very positive quarter for equity markets with a relatively lackluster four days of trading. Small-caps, a significant laggard year-to-date, were the biggest beneficiaries, while markets saw little sponsorship. Zooming out, market breadth has temporarily broadened out from last year’s incredibly narrow price action. However, currently, it is hard to see durable support for a “rising tide that lifts all boats” trade that would see the rest of the global equity market outperform the large-cap growth, quality, and AI-adjacent themes. First quarter earnings season will be an important test to see how investors react to the narrowing of the earnings tailwinds that software and semiconductor firms have enjoyed for the past year.

   2. Monetary Policy Picture Unchanged and Good Data Remains Good for Markets

      The economic data and speeches from Fed Chair Jay Powell and Governor Waller didn’t change the picture for monetary policy – investors are waiting for more data, but rate cuts are likely still coming this year. In terms of the impact to risk assets, the data was on balance, marginally positive. For now, good data is good for markets, until and unless we must start contemplating additional rate hikes. Back to monetary policy – interest rate expectations for 2024 remained unchanged on the week. At this point in the rate cycle, how the economic data evolves is likely more important than the forecasts and the countless commentary of the members of the FOMC.

   3. Nonfarm Payrolls Report Takes Center Stage and Labor Market Remains Resilient

      Looking to this week, Friday’s nonfarm payrolls report will take center stage. Continued labor market resilience coupled with modest (but not supercharged) wage gains would likely support risk assets in the short term. We are monitoring whether last week’s rotation into small caps hold or prove fleeting. Quarter end rebalancing, in the absence of more tangible (and durable) catalysts, was likely the primary driver of last week’s rotation into year-to-date laggards. Lastly, we turn to monetary policy – speeches from Jerome Powell and John Williams (head of NY Fed) are the highlights.

What Happened Last Week?

Here is a recap of the top things that happened last week:

• Holiday-shortened week ends 1Q 2024 – U.S. equities (S&P 500) rose over 10%, a strong historical quarterly return.
• Quarter end rebalancing likely contributed to the outperformance of year-to-date laggards (e.g. small caps).
• Monetary policy signaling from the Fed Chair and economic data did not meaningfully change interest rate expectations for 2024.

What We’re Watching This Week

Here is a recap of what we’re watching for this week:

• Economic data: Friday’s non-farm payrolls report is expected to show another ~205k jobs added in March with wages ticking modestly higher relative to February.
• Price action: Monitoring for signs of a more durable trend change in favor of year-to-date laggards.
• Fed: Speeches from Powell and Williams (NY Fed President) are the highlights.

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CPI = Consumer Price Index, PPI = Producer Price Index, PMI = Purchasing Managers’ Index, PCE = Personal Consumption Expenditures Price Index.

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