What We're Seeing: Bull Trend Broadening – 25 March 2024

The Week in Brief

US stocks continued to ride a strong bull trend last week. The S&P 500 notched another weekly gain, marking its fourth straight month of advances, while the Nasdaq traded near all-time highs. What caught our attention was not just the headline numbers but the underlying shift in market character: breadth is finally improving.

For months, a handful of mega-cap technology names carried the index higher while most stocks languished. That dynamic appears to be changing. Small-cap indices and cyclical sectors posted meaningful gains, suggesting that risk appetite is spreading beyond the usual suspects. When breadth expands in a rising market, it tends to be a constructive signal for sustainability.

Bonds and Commodities

Treasury yields in the 2 to 5 year range edged lower after Fed speakers cautioned against premature rate cuts. This was a mild positive for bond prices, though the moves were modest. The message from policymakers remains consistent: they want to see more evidence that inflation is durably trending toward target before easing policy.

Commodities were mixed. Gold and oil rallied on geopolitical jitters, with tensions in the Middle East providing a bid. Base metals lagged, reflecting some uncertainty about global industrial demand. We continue to watch copper as a barometer of growth expectations.

Our Read

The broadening of market leadership is the most important development this week. When only a narrow group of stocks drives an index higher, the rally is vulnerable to sudden reversals if sentiment shifts on those names. When gains are more evenly distributed, the foundation is sturdier.

We think the current setup favours staying invested in equities, with a tilt toward quality cyclicals and smaller companies that have lagged. The risk/reward for adding duration in fixed income looks less compelling while yields remain elevated and the Fed is in no rush to cut.

That said, geopolitical risk is not something we can model with precision. The Middle East situation bears watching. If oil prices spike meaningfully higher, that would complicate the inflation picture and potentially force the Fed to stay restrictive for longer.

What Could Change Our View

A sudden reversal in breadth, where mega-caps resume sole leadership and smaller stocks falter, would suggest the rotation is a head-fake rather than a genuine shift. We would also reassess if Treasury yields broke meaningfully higher from here, say the 10-year pushing above 4.5%, as that would tighten financial conditions and weigh on equity valuations. For now, the trend remains our friend.

This is informational commentary, not investment advice.