U.S. stock markets ended the first quarter on a high note as the S&P 500 marked a new record close in last-week’s uneventful holiday shortened trading. In fact, the S&P 500 has gotten off to its best calendar year start since 2019 with a total return of 10.6% for the quarter including last week’s 0.4% gain. Meanwhile, the Dow Jones rose 0.8% last week to post a 6.1% return for the quarter, and the Nasdaq slid lower by 0.3% but has still logged a strong 9.3% return so far this year. Stock markets managed to shake-off a rise in interest rates with the U.S. 10-year Treasury yield closing last week at 4.20% after starting the year at 3.88%. Rising market yields pushed bond prices lower with the Bloomberg U.S. aggregate bond index notching a 0.8% loss in the first quarter.

Encouragingly, this year’s stock market performance has been broader based than last year’s returns that were largely driven by just a handful of mega-cap technology stocks. All economic sectors of the S&P 500 except for real estate are in the green on the year, and the energy and financial sectors have been among the leading performers alongside technology and communication services. Enthusiasm around artificial intelligence remains a dominant market driver, but the resilience of U.S. economic data and corporate profits have also given a lift alongside expectations for the Fed to begin lowering rates in the second half of this year.

Regarding rate cut expectations, Friday’s release of the Fed’s preferred inflation gauge, the PCE index (Personal Consumption Expenditures), came in generally as expected for the month of February as headline inflation came in at 2.5% year-over-year and core inflation growth (excluding food and energy) ticked down to 2.8% from 2.9% in January. The report did little to shift consensus expectations for three rate cuts this year. Fed Chairman Jerome Powell reiterated at a speech in San Francisco Fed event on Friday that the central bank can be patient when it comes to cutting rates given the resilient U.S. economic backdrop and noted that the committee wants to see more “good” inflation prints like the back half of last year after back-to-back hotter than anticipated inflation readings to start 2024. As a result, inflation readings over the next few months will continue to garner outsized attention as market participants assess the timeline for potential rate cuts.

There was some market focus on the bridge that collapsed in the Port of Baltimore last week. The Port is the 17th largest in the U.S. but ranks more highly for vehicle imports. In California, A $20-per-hour minimum wage for fast-food workers begins today. The law, which has been vigorously opposed by the industry, applies to most of the sector’s workers in the state, and requires that employers also offer paid overtime and family leave. Both of these events have garnered headlines, especially in the coasts, but we expect their impact on the national economy will be limited.

In the week ahead, the labor market will be in focus as the March U.S. jobs report is set to be released this Friday. The data is expected to show a labor market that remains robust overall. Consensus expectations call for 200k jobs added versus 275k prior. Wage growth is expected to decelerate to 4.1% year-over-year (prior: 4.3%), and the unemployment rate is projected to fall to 3.8% from 3.9%. The corporate news calendar remains light as companies gear up for first quarter earnings season that will kick off late next week.