Portfolio Manager Commentary

February 1, 2024

The Portfolio Manager Commentary is provided by Trustmark’s Tailored Wealth Investment Management team. The opinions and analysis presented are accurate to the best of our knowledge and are based on information and sources that we consider to be reliable and appropriate for due consideration¹.

Economic Outlook

U.S. Industrial Production was flat for December, with Capacity Utilization also flat at 78.6%. The Index of Leading Economic Indicators was down 0.10% in December after having been down 0.50% in November. The Chicago Purchasing Managers Index was 46 for January, down slightly from the 47 reading from December. The NAHB Housing Market Index was still in contractionary territory in January, at a reading of 44. Finally, the PCE Deflator, a measure of inflation, came in at 0.17% for December after having been at -0.07% in November.

Fixed Income

The U.S. Treasury Yield Curve remains inverted; however, this inversion has continued to remain somewhat flatter, with the 10-year yield at 3.88%, 33 basis points below the 2-year yield of 4.21%. The 2yr to 30yr spread is flatter still, at -9 basis points. The U.S. Treasury Yield Curve has now been inverted for 18-19 months. At its recent meeting, the FOMC left the Federal Funds target rate range at 5.25% - 5.50%. The FOMC also expressed doubt that interest rate cuts will be forthcoming by the March FOMC meeting. The three-month and six-month U.S. Treasury Bills currently yield in a range of 5.17%-5.36%, which is within the range of the FOMC’s current Fed Funds rate target. U.S. Treasury Bill yields out seven months (early August of 2024) are now yielding 5.00%, or slightly below the target rate in anticipation of a first interest rate cut.

Yield Curve

Current Generic Bond Yields

Equity

The strong end to 2023 continued into 2024 as momentum carried stocks as the S&P 500 index returned 2.24% year-to-date, which includes a new all-time high for both the Dow and S&P 500. The soft/no-landing narrative continued to make headlines along with economic releases that have been described as having “Goldilocks” characteristics (Factset Research Systems). The Market is currently expecting rate cuts to begin in March with May being the latest expectation of an initial cut, though the Fed’s language kept this open as certain Fed officials noted there was no reason to move quickly or cut rapidly until there is confidence that inflation is moving sustainably towards the ~2% target.

Growth (+3.98%) had a strong start to the year compared to Value (+0.25%) with Communication Services (+5.42%), Technology (+3.71%), and Health Care (+3.09%) leading the way and Consumer Discretionary (-3.65%), Materials (-3.13%), and Utilities (-2.72%) struggling. The S&P 500 made new all-time highs, in which the recent high of ~4820 now provides the next level of support for the index.