Market Pulse – March 2024 – Beragampengetahuan
Market Pulse is a monthly series that aims to provide some useful insights for my savings and investments based on simple tools and data that I reference every month.
Finally back after pausing this series for a little bit in January and February as I spent two weeks overseas, followed by the festive activities of Lunar New Year.
At a certain point in time, everyone is going to start thinking about this possibility. What if .. ?
Contents
1. Inflation & PCE Index
Although the Consumer Price Index (CPI) is widely watched, the Federal Reserve’s preferred inflation gauge is actually the Personal Consumption Expenditures (PCE) index.
This is because it (PCE) has a broader scope and better reflects how consumers change what they buy to account for rising prices.
Even though both are price indexes, CPI (U.S. Bureau of Labor Statistics) and PCE (Bureau of Economic Analysis) are calculated by different federal agencies using a different set of formulas, weightage and scopes.
The Core PCE Index excludes energy and food prices which are volatile categories.
Why is the exclusion of energy and food prices important? When the Fed is looking at inflation, they are less concerned with what is happening to the living standard of the household.
Instead, they want to know the macroeconomic inflationary pressure that is building up.
The Fed uses the PCE index as its 2% inflation target benchmark.
- Federal Reserve inflation target (12-month target) → 2.0%
- PCE Index (Jan 2024) → 2.4%
- PCE Index excluding food and energy (Jan 2024) → 2.8%
Although concerns arose in the market that data would come in hot, the current PCE index data supports the expectations of rate cuts in the middle of the year.
The next release for PCE data will be on March 29, 2024.
2. Interest Rate & Fed Rate Hike
The Federal Open Market Committee (FOMC) is the monetary policy-making body of the Federal Reserve System, the central bank of the United States, and it holds eight regularly scheduled meetings during the year.
The next meeting is scheduled for March 19, 2024.
The committee is responsible for setting the target federal funds rate, which is the interest rate that banks charge each other for overnight loans.
The federal funds rate is a key benchmark interest rate that affects many other interest rates in the economy, including mortgage rates and credit card rates.
The Federal Reserve uses rate hikes as a tool to lower inflation by making borrowing more expensive, which in turn reduces spending and slows down economic growth.
This makes it more costly for businesses and consumers to borrow money, which reduces demand for goods and services and can help to lower prices.
According to the CME FedWatch Tool, interest rate traders think that the Fed will not be increasing interest rates at the upcoming meeting.
The market expects the current interest rates to be maintained until June 2024 (vs March 2024 previously) before the target rate comes down.
For now, it remains extremely unlikely that another interest rate hike is still on the table, but we are pretty close to the pivot.
The Fed rate hikes from 2022 to 2023 can be seen in the table below.
| FOMC Meeting Date | Rate Change (bps) | Federal Funds Rate |
|---|---|---|
| Mar 19, 2024 | — | ? |
| Jan 31, 2024 | — | 5.25% to 5.50% |
| Dec 12, 2023 | — | 5.25% to 5.50% |
| Oct 31, 2023 | — | 5.25% to 5.50% |
| Sep 20, 2023 | — | 5.25% to 5.50% |
| July 26, 2023 | +25 | 5.25% to 5.50% |
| June 14, 2023 | — | 5.00% to 5.25% |
| May 3, 2023 | +25 | 5.00% to 5.25% |
| March 22, 2023 | +25 | 4.75% to 5.00% |
| Feb 1, 2023 | +25 | 4.50% to 4.75% |
| Dec 14, 2022 | +50 | 4.25% to 4.50% |
| Nov 2, 2022 | +75 | 3.75% to 4.00% |
| Sept 21, 2022 | +75 | 3.00% to 3.25% |
| July 27, 2022 | +75 | 2.25% to 2.50% |
| June 16, 2022 | +75 | 1.50% to 1.75% |
| May 5, 2022 | +50 | 0.75% to 1.00% |
| March 17, 2022 | +25 | 0.25% to 0.50% |
| Prior | — | 0.00% to 0.25% |
The current high-interest rate environment will continue to be a blessing for savers as we continue to earn high returns effortlessly from low-risk instruments such as –
As global interest rates are expected to decline in 2024, liquidity would inevitably exit these instruments in search of higher yield and returns.
3. Singapore Savings Bonds Returns
The latest issue (April 2024) of Singapore Savings Bonds gives the following returns.
- Year 1 returns = 2.95%
- Average returns over ten years = 3.04%
History has shown that SSBs with yields over 3% are extremely appealing and have seen very little redemptions from investors.
This latest issue could see the return of retail demand considering that yield is now back to 3%.
4. Singapore REITs Index
By now, it feels like 2020 when the pandemic happened was such a long time ago.
The iEdge S-REIT Leaders Index (SGD) has been looking absolutely battered as a result of the pandemic (March 2020) followed by rate hikes by the Federal Reserve (October 2023).
- iEdge S-REIT Leaders Index → 1,056 (Now)
- Pre-Pandemic high → 1,542 (Feb 2020)
- Post-Pandemic low → 967 (Oct 2023)
As mentioned in REITs Watch, there are triple factors that REITs are struggling against right now.
- Higher finance (borrowing) costs
- Higher property expenses (cost pressure e.g. energy prices)
- Foreign exchange weakness (strong SGD)
Even when Singapore REITs looked the ugliest and seemed least attractive, the search traffic on my blog for REITs content (e.g. Syfe REIT+ and Lendlease REIT) has been the highest in recent months.
If you believe that REITs can eventually reclaim the pre-pandemic high of the 1,500 level, it represents a significant upside (40%) assuming that time and patience are in abundance for you.
5. Greed & Fear Index (Equities)
Fear & Greed Index → 79 / 100
The Fear & Greed Index is a way to gauge stock market movements and whether stocks are fairly priced.
The theory is based on the logic that excessive fear drives down share prices, and too much greed tends to have the opposite effect.
The Fear & Greed Index is a compilation of seven indicators that measure some aspects of stock market behaviour:
- Market momentum
- Stock price strength
- Stock price breadth
- Put and call options
- Junk bond demand
- Market volatility
- Safe haven demand
The index tracks how much these individual indicators deviate from their averages compared to how much they usually diverge, and gives each indicator equal weighting in calculating a score from 0 to 100, with 100 representing maximum greediness and 0 indicating maximum fear.
Market Pulse Recap
Staying on top of the latest market trends and developments is crucial for making informed financial decisions.
- Inflation data supports the expectations of a rate cut in the middle of 2024.
- SSB rates is still hovering around 3% which will help draw in liquidity.
- S-REITs look attractive to me since I have time and patience.
- S&P 500 and NASDAQ made record highs on 29 Feb 2024.
- As always, nobody knows anything.
Hopefully, this recurring series will be helpful for you just like it has been insightful for me.
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Kevin started beragampengetahuan when his net worth languished at negative $25,755. His desire to turn things around led him to build passive income from investments and side hustles that pay for his daily expenses and vacations. You can learn more about Kevin here.
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