Portfolio Manager Commentary

February 15, 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

The ISM Manufacturing Index was 49.1 for January, a bit better than the 47.1 level for December. The Markit PMI Manufacturing Index was 50.7 for January. The Chicago Purchasing Managers’ Index was 46.0 for January versus 47.2 for December. U.S. Durable Goods Orders were flat in December. Industrial Production was down 0.10% in January and Capacity Utilization was 78.5%. The Markit Services PMI came in at 52.5 for January, and the ISM Services PMI came in at 53.4 also for January. U.S. Productivity was strong, at +3.4% in the 4th quarter of 2023, although a little down from the 4.9% annualized increase in the 3rd quarter of 2023. Retail Sales were down 0.80% in January. The University of Michigan Sentiment Index was 79.0 for January versus 78.8 for December. The NAHB Housing Market Index was still down at 48.0 for February versus 44.0 for January. The NFIB Small Business Index was 89.9 for January, down slightly from December. The U.S. Unemployment Rate was flat at 3.7% for January. Consumer Prices were up 0.30% for January and up 3.10% for the year ended January 2024. Finally, Average Hourly Earnings were up 4.50% in January (annualized rate).

Fixed Income

The U.S. Treasury Yield Curve remains inverted; however, this inversion has continued to remain somewhat flat, with the 10-year yield at 4.29%, 37 basis points below the 2-year yield of 4.66%. The U.S. Treasury Yield Curve has now been inverted for 19 months. At its recent meeting in late January, the FOMC left the Federal Funds target rate range at 5.25% - 5.50%. During Jerome Powell's speech at the January meeting, he emphasized that the Federal Reserve is moving closer to cutting interest rates. However, he also stated it was unlikely that rate cuts would begin in March. U.S. T-bills do not trade solidly at 5.00% (below the lower end of the FOMC’s Fed Funds Rate Range) until late November 2024, which is a good guess at a date for a possible rate cut.

Yield Curve

Current Generic Bond Yields

Equity

Stocks have continued to rally in 2024, with the S&P 500 up 3.84% year-to-date. The S&P 500 briefly rose above 5,000 for the first time in history during the second week of February. The leading sectors for the year are Communication Services (+10.15%), Information Technology (+7.60%), and Health Care (+4.70%). The sectors with largest drawdowns this year include Real Estate (-6.21%), Utilities (-5.57%), and Materials (-3.54%).

The breadth of this market rally has become a point of focus after achieving 5 consecutive weeks of the S&P 500 trading up by at least 1%. According to NDR, the percentage of NASDAQ 100 and S&P 500 stocks above their 50-Day moving average now sits at 59.4% and 51.7%. However, the percentage of Small-Cap stocks above their 50-Day moving average is only 43.7%.