Investment Update | Saratoga National Bank

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Investment Update

By Rick Schwerd | March 15, 2024

Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for our next update on April 5.

Inflation Data Disappoints

A batch of hotter-than-expected inflation data for February was released this week. The Consumer Price Index (CPI) data was released on Tuesday, with headline CPI flat month-over-month at 4.3 percent annualized. Core CPI dropped .1 percent to 3.8 percent annualized, but this was less of a drop than expected. Producer Price Index data (PPI) was released on Thursday and both headline and core PPI were also hotter than expected.

At first, markets took the news in stride. The S&P 500 actually closed at a new all-time high on Tuesday following the CPI data release. However, following Thursday’s PPI data, markets moved lower. Bonds sold off, which pushed yields higher. The benchmark 10-Year U.S. Treasury rate increased to 4.3 percent, near its highest level since last fall. The higher rates spooked equity markets resulting in a modest sell-off on Thursday.

Mixed Jobs Report

Last Friday’s employment report was mixed, providing some comfort that the labor market remains strong, but showing it is not overheated. The economy added 275,000 jobs in February, 75,000 more than expected. However, total job gains from the previous two months were revised significantly lower and the unemployment rate increased from 3.7 percent to 3.9 percent. Average Hourly Earnings (an inflation gauge) came in at 4.3 percent, which was lower than expected.

Small-Cap Stocks Continue to Underperform

Small-cap stocks were punished on Thursday. The benchmark Russell 2000 Index ended the day down 2 percent and is now essentially flat for the year. For comparison, the large-cap S&P 500 Index is up 8 percent year-to-date. Small caps have been underperforming for a while now as several factors have handicapped the group. Large-cap tech stocks, such as Microsoft, Nvidia and Meta, have been leading the equity markets through most of the rally since the late 2022 lows. These stocks are not part of the small-cap universe.

Many of the sectors that are heavily weighted in small-cap index, such as retail companies, utilities and regional and community banks are interest rate sensitive. The Federal Reserve will likely begin cutting rates this year. This may provide the stimulus to propel the small-cap higher.

Possible TikTok Ban

With strong bipartisan support, the House voted overwhelmingly to require ByteDance, the parent company of TikTok, to sell the popular app or face a ban in the U.S. The bill will see a showdown in the Senate, where lawmakers have signaled a more cautious approach. President Biden has said he would sign a bill if it reached his desk. TikTok survived regulatory challenges in the past. President Donald Trump tried to ban the app through executive order, but it was blocked by the courts.

TikTok has more than 100 million users in the U.S. and the issue may prove to be consequential in an election year. ByteDance allegedly has ties to the Chinese Communist Party. The fear remains that the app could provide valuable data on U.S. users to the Chinese as well as giving the Chinese the ability to influence the feeds that are sent to U.S. users, thus allowing them to manipulate public opinion.

Popular U.S.-based social media firms Facebook and X are unavailable in China. TikTok also isn’t available inside China, where ByteDance operates Douyin, a sibling app that uses a similar algorithm structure to recommend content but is subject to Communist Party censorship. Facebook parent Meta, X and other U.S.-based social media companies could ultimately benefit from a TikTok ban or divestiture.

As always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out to us at (518) 415-4401.

About the Author: With almost three decades of financial industry experience, Rick serves as a Senior Investment Officer at Saratoga National Bank. He oversees individual and corporate retirement plans, personal trusts, investment management accounts, foundations and not-for-profit relationships. He is also co-portfolio manager of the proprietary North Country Large Cap Equity Fund.


 

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