Weekly Market Update: Navigating Equity Rotation, Fed Insights, and Economic Data Ahead

Market Overview: 

Equity markets witnessed a notable rotation this week, with small caps outperforming as investors sought areas beyond the dominant technology sector. This rotation favored the value style over growth, with utilities, energy, and healthcare sectors performing well while technology lagged. Meanwhile, international equity markets saw modest performance, with European and Japanese equities posting respectable returns. 

In fixed income, despite warnings from some Fed officials against premature rate cuts, the Bloomberg Aggregate Bond Index finished higher for the week, contributing to a positive month overall. Treasury yields declined, particularly in intermediate and long-term bonds, driven by strong foreign buying at Treasury auctions. 

Commodities saw gains, propelled by increases in energy, agricultural, and livestock prices. Geopolitical tensions in the Middle East and Ukraine, along with OPEC+ production cuts, supported oil prices. Cocoa futures surged due to supply shortages, while gold and copper also experienced upward movement. 

Federal Reserve Insights and Economic Roundup: 

Fed board member Christopher Waller's comments hinted at a cautious approach to rate cuts, contingent on economic conditions and inflationary pressures. The probability of a rate cut at the upcoming Fed meeting decreased to 64.4%. Treasury yields fell due to robust foreign demand at Treasury auctions, despite Waller's stance. 

The Fed’s preferred inflation metric, the Core PCE Deflator, increased in-line with expectations up 2.8% over the year. The consumer continues to spend with nominal spending up 0.8% in February, supported by 0.3% increase in personal income. Q4 GDP was revised up to 3.4% from 3.2%. 

The Week Ahead: 

Key economic data scheduled for the upcoming week includes: 

- Monday: Construction Spending (Feb), ISM Manufacturing (Mar) 

- Tuesday: JOLTS (Feb), Factory Orders (Feb), Durable Goods Orders (Feb) 

- Wednesday: MBA Mortgage Applications (Mar 29), ADP (Mar), ISM Services (Mar) 

- Thursday: Challenger Job Cuts (Mar), Trade Balance (Feb), Initial Claims (Mar 30) 

- Friday: Nonfarm Payrolls (Mar), Unemployment Rate (Mar), Consumer Credit (Feb) 

Investors will closely monitor these indicators for insights into economic trends and potential market impacts.