Week Ahead on Wall Street: Records and Rebalancing
By: Mario Ismailanji · March 25, 2024 · Reading Time: 5 minutes
Is a Rotation Coming?
There’s less than a week left in the first quarter of the year, and what a quarter it has been. Let’s take stock of how far we’ve come and what might lie ahead.
Investor expectations for rate cuts in 2024 moved down from as high as seven to as low as three today, we had an upside surprise bonanza of an earnings season, and the Bank of Japan ended its decade-long experiment with negative interest rates, just to name a few things. Oh and stocks did well… really well.
S&P 500 total returns are over 10% so far this year. Considering that the index has historically returned that much annually, saying that stocks are doing well might be an understatement. Additionally, the move higher for stocks has been a steady one, without much in the way of drawdowns to speak of. That’s led to the S&P 500 setting new all-time highs more than 20 times this year.
However, it’s important to keep in mind that quarter-end periods can sometimes bring volatility and reversals as investors rebalance their portfolios, especially when there are differences in stock and bond returns. Stocks are up big while bonds have actually had negative returns this quarter, with the performance spread between the two asset classes the widest since the second quarter of 2020. Generally, rebalancing means bringing your portfolio back to its strategic asset allocation. For example, if your target allocation was a 60/40 mix and stocks were now 70% of your portfolio due to a strong rally, a rebalance would mean selling some stocks to buy bonds.
The wider the performance gap between parts of a portfolio, the more potential there is for rebalancing. And if enough investors rebalance, the rotation from stocks into bonds could cause a reversal in price trends, if only temporarily. Considering that this week’s calendar is devoid of any big data fireworks like we’ve had over the last few weeks, portfolio rebalancing might take center stage.
Economic and Earnings Calendar
Monday
• February New Home Sales: While only a minority of home transactions in any given month come from new constructions, these home prices tend to be more cyclical and give insight into developing trends.
• March Dallas Fed Manufacturing Activity: This is the Dallas Fed’s survey of manufacturing executives in the region on business conditions and their outlook.
• Fedspeak: Atlanta Fed President Raphael Bostic will participate in a moderated discussion on equitable economic development. Fed Governor Lisa Cook will speak on the Fed’s dual mandate and the balance of risks.
Tuesday
• February Factory and Durable Goods Orders: These metrics give insight into underlying trends for leading cyclical indicators.
• January FHFA House Price Index: This is a broad measure of single-family house prices released by the Federal Housing Finance Agency.
• January S&P CoreLogic Case-Shiller Home Price Index: This is a private sector measure of national home prices. After a period of slight decline in the second half of 2022 and early 2023, the index returned to growth and is now at record highs.
• March Conference Board Consumer Confidence: How consumers feel about economic conditions may affect their spending habits. This survey places a particular focus on job availability and the state of the labor market.
• March Richmond Fed Manufacturing Activity: The Richmond Fed’s survey of manufacturing executives in the region on business conditions and their outlook.
• March Richmond Fed Non-Manufacturing Activity: The Richmond Fed’s survey of services industry executives in the region on business conditions and their outlook.
• March Dallas Fed Non-Manufacturing Activity: This is the Dallas Fed’s survey of services industry executives in the region on business conditions and their outlook.
• Earnings: McCormick & Company (MKC)
Wednesday
• Weekly Mortgage Applications: Mortgage activity gives insight on demand conditions in the housing market.
• Fedspeak: Fed Governor Christopher Waller will discuss the economic outlook.
• Earnings: Carnival (CCL), Cintas (CTAS), Paychex (PAYX)
Thursday
• Q4 GDP Third Estimate: The primary measure of economic growth in the United States, which is measured as total expenditure on a country’s goods and services. This will be the third reading of Q4 activity.
• Q4 GDI Second Estimate: An alternative measure of economic growth in the United States, which is measured as all income earned from the production of a country’s goods and services. Theoretically, this should equal GDP since one person’s spending is another person’s income, but differing data sources used between the two means there is often a difference between the two which is referred to as the statistical discrepancy.
• March Kansas City Fed Manufacturing Activity: The Kansas City Fed’s survey of manufacturing executives in the region on business conditions and their outlook.
• Weekly Jobless Claims: This high frequency labor market data gives insight into filings for unemployment benefits. Jobless claims have continued to show a labor market that remains strong despite having cooled.
• Earnings: Walgreens Boots Alliance (WBA)
Friday
• February Personal Consumption Expenditures Price Index: The Fed targets this inflation measure for its price stability mandate and believes PCE to be the best measure of consumers’ spending habits.
• February Personal Income and Spending: These numbers give insight into how Americans are doing, which is important since consumer spending accounts for about two-thirds of economic growth in the United States.
• February Wholesale and Retail Inventories: Wholesalers and retailers often operate as intermediaries for the sale of manufactured products, serving as a key part of the goods supply chain.
• March Kansas City Fed Non-Manufacturing Activity: The Kansas City Fed’s survey of services executives in the region on business conditions and their outlook.
• Fedspeak: Fed Chair Jerome Powell will participate in a moderated discussion.
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