Stocks Make a 3rd Monthly Record as Buyers Rotate Away from Growth

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Stocks hit a new record for the third straight month in March, but there was significant rotation away from growth names and technology

The S&P 500 rose 3.1 percent, outpacing the Nasdaq-100 by 1.9 percentage points. It was the biggest underperformance in the tech-heavy index since December 2022. Cyclical sectors like energy and materials led. The Russell 2000 small cap index also showed signs of a potential breakout.

Most economic reports were consistent with a “soft landing,” which includes slower inflation without a recession. Non-farm payrolls showed more job growth than expected, but unemployment was higher than forecast and wages lagged. That reflects a potentially strong labor market without a wage-price spiral. Initial jobless claims — a potential warning sign for slowdowns — also remained near the bottom of their long-term range.

Inflation trends are “more or less in line with what we want to see,” Federal Reserve Chair Jerome Powell said last week. That was consistent with earlier comments that he’s “not far” from having the confidence to cut interest rates.

Central bankers sent at least two other important signals:

  • Their March 20 “dot plot” showed policymakers uniting around three interest-rate cuts this year. `
  • The same document raised its outlook for U.S. economic growth this year from 1.4 percent to 2.1 percent.
Micron Technology (MU), daily chart, with post-earnings rallies.

Micron and Tesla

Micron Technology (MU) was the S&P 500’s best performer in March. It also had its biggest monthly gain since January 2011.

The semiconductor company became the latest technology stock to benefit from the boom in Artificial Intelligence (AI). Results and guidance beat estimates as strong demand for high bandwidth memory boosted profit margins.

Tesla (TSLA), on the other hand, continued lower on worries about EV demand and pricing. It’s now the S&P 500’s worst performer on the year-to-date basis, according to TradeStation Data.

Other big gainers were a mix of stocks: Freeport-McMoRan (FCX) gained on optimism about copper prices. Utility stock NRG Energy (NRG) and oil refiner Valero Energy (VLO) benefited from strong demand as the economy skirts recession. DexCom (DXCM) continued to recover from a sharp selloff last year.

TradeStation Data also showed that 114 members of the S&P 500 hit new 52-week highs last month, the most in almost three years. Such price action may reflect positive breadth, with buyers active in a wider set of companies.

Russell 2000 futures (@RTY), weekly chart, showing close above August 2022 weekly close.

Energy and Small Caps

Despite continued strength in chip stocks, the broader technology sector lagged on weakness in Apple (AAPL) and software companies.

Energy, which offers more exposure to a strong economy, led the market in March. It also became the top-performing sector on a year-to-date basis.

The Russell 2000 small cap index additionally had its highest weekly close since April 2022. That may suggest it’s attempting a breakout after years of underperformance. The Russell is still about 14 percent below its previous record high. Other benchmarks like the S&P 500, Nasdaq-100, Dow Jones Industrial Average and S&P 400 Midcap index have all climbed above previous peaks from late 2021 and early 2022.

The S&P 500 is showing few potentially bearish signals. Certain patterns that may confirm its uptrend have remained in place. Prices have not gone under the rising 21-day exponential moving average (EMA). The nine-date rate of change has stayed positive and Wilder’s Relative Strength Index (RSI) has remained above 50.

Last week’s bounce also occurred after the index retraced less than half its rally the previous week.

S&P 500, daily chart, with key indicators and patterns.

Big Movers in March

Top Gainers in the S&P 500 Last Month
Micron Technology (MU)+30%The semiconductor maker beat estimates and raised guidance after AI applications fueled demand for high bandwidth memory.
Freeport-McMoRan (FCX)+24%The copper company rallied as Chinese smelters reduced production of the metal, boosting prices.
NRG Energy (NRG)+23%The Houston-based utility rallied as warm weather in Texas fueled demand for electricity.
Valero Energy (VLO)+21%The oil refiner benefited from strong demand and tight inventories of gasoline.
DexCom (DXCM)+21%The diabetes company continued to rebound from a selloff in late 2023.
Source: TradeStation Data
Top Decliners in the S&P 500 Last Month
Lululemon Athletica (LULU)-16%The athletic apparel company forecast sales below consensus amid weakening demand.
Southwest Airlines (LUV)-15%The airline cut its outlook and planned capacity amid problems with Boeing aircraft.
Zoetis (ZTS)-15%The supplier of animal medicines continued lower after issuing weak results and guidance on February 13.
Brown-Forman (BF.B)-14%The liquor company cut guidance on slowing demand for brands including Jack Daniels.
Tesla (TSLA)-13%Weak demand weighed on the EV maker ahead of its quarterly deliveries report.
Source: TradeStation Data

Sector Watch

Energy+9.6%
Materials+6.1%
Utilities+5.7%
Financials+4.3%
Industrials+4.1%
S&P 500+3.1%
Communications+2.9%
Consumer Staples+2.4%
Health Care+2%
Real Estate+1.1%
Technology+0.6%
Consumer Discretionary-0.3%
Source: TradeStation Data

Key Economic Events in March

Below are some key economic events from last month.

  • Jerome Powell “not far” from having the confidence for rate cuts: The Federal Reserve chair told lawmakers the central bank wants more confidence that inflation is moving sustainably toward 2 percent, but added that he’s “not far” from that belief. (3/7) Two weeks later, the Fed projected three rate cuts in 2024.
  • Job growth beats as wages moderate: Non-farm payrolls increased by 275,000 in February, beating estimates for growth of 200,000. Unemployment was higher than expected and wages grew by 0.1 percent, missing the 0.3 percent forecast. The news potentially suggested that strong demand for labor isn’t fueling inflationary pressures. (3/8)
  • Inflation slightly exceeds consensus: The Consumer Price Index (CPI) rose 0.4 percent in February, matching estimates. However it was slightly higher than expected excluding food and energy. Shelter, airline fares and auto insurance drove the increase. (3/12)
  • Housing makes a comeback: NAHB’s homebuilder sentiment unexpectedly turned positive amid strong demand for residences. (3/18) Housing starts and building permits also surprised to the upside. (3/19)

What Experts Are Saying

Below are some noteworthy commentaries:

  • FactSet estimated that the S&P 500 could rally toward 5,589 this year, based on analyst price targets for companies in the index. The bottom-up analysis detected the greatest potential upside in health care and real estate. (3/21)
  • The S&P 500 could reach 6,000 this year, according to Goldman Sachs strategist David Kostin. He said the rally would require strong fundamental performances from large technology companies. He added that valuations remain far from “bubble territory.” (3/25)
  • Oppenheimer Chief Investment Strategist John Stoltzfus raised his target on the S&P 500 from 5,200 to 5,500. He cited improving earnings and the potential for bearish investors to grow more positive. Stoltzfus added the target may need to increase later in the year. (3/25)
  • The Russell 2000 index could rise 50 percent this year, according to Tom Lee of Fundstrat. He cited the growth potential of small caps and lower valuations relative to large companies. (3/26)
  • Businesses are getting more confident in sales growth and hiring, according to a Bespoke analysis of monthly survey data from the Atlanta Federal Reserve. The improvement ends more than two years of declines. (3/27)

Popular Futures Contracts in March

ProductCurrent
Month
ExpirationNext
Month
1-Mon%
S&P 500 E-Mini (@ES)ESM24 (Jun)6/21/24ESU24+2.7%
Nasdaq-100 E-Mini (@NQ)NQM24 (Jun)6/21/24NQU24+0.8%
Dow Jones E-Mini (@YM)YMM24 (Jun)6/21/24YMU24+1.8%
Russell 2000 E-Mini (@RTY)RTYM24 (Jun)6/21/24RTYU24+3.1%
Source: TradeStation Data

Newsworthy Events This Month

DateEventWhat to Watch For
Fri 4/5Employment reportHiring and wage trends in February
Wed 4/10Consumer price index (CPI)Inflation trends
Fri 4/12Earnings season beginsJPMorgan Chase (JPM), Citi (C) and Wells Fargo (WFC) report earnings.
Mon 4/15Retail salesThe strength of consumer spending
Thu 4/25Gross domestic productThe government issues its initial estimate of economic growth between January and March.

Security futures are not suitable for all investors. To obtain a copy of the security futures risk disclosure statement visit www.TradeStation.com/DisclosureFutures.

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