U.S. equity indices ended the 1^st quarter at or near all-time highs while bank stocks finished lower despite a strong March. Treasuries finished lower with yields higher but well above the October sell off levels. Regional business surveys generally show continued weakness. February PCE mirrored the earlier CPI measures.

The S&P 500 ripped higher in 1Q24 for the best quarterly start to a year since 2019 and the 4^th best quarterly start over the past 27 years. Only 1998, 2012 and 2019 topped the early move in the broad market during that period. In 1998 and 2019, the S&P 500 went on to net gains of 26.7% and 28.9%, respectively. In 2012, the S&P 500 finished the year up 13.4% after a +12% 1^st quarter mark. From this small sample set analysis, the probabilities seem to indicate pressing higher with risk assets although the performance in 1998 and 2019 took distinctly different paths.

Bank stocks diverged from the broader markets hot start. The Nasdaq BANK index finished lower for the quarter by -0.44% while the higher beta KRE index fell -6.66%. Historical BANK 1^st quarterly performance was decidely luke warm with just the 13^th best start over the 27 year period. Any correlation between BANK performance and those standout S&P 500 starts would seem to be forced. Unlike 2024 the BANK index also had hot starts in those prior years with 1^st quarter gains of more than 6%. Subsequent BANK performance in each of those years was widely varied without a noticeable common pattern.

Treasuries traded lower in the quarter with yields for maturities of 1-year or greater higher by 24 to 39 basis points. Yield curve inversion remains although flatter over the quarter. 10-year minus 2-year spreads have been inverted since July 2022 although they are less so from their July 2023 trough of -108 bps. 10-year minus 3-month spreads remain inverted since October 2022. The level of inversion is both long and pronounced on a historical comparision. The depth and lenghth of time in 10-year/3-month inversion would seem to highlight the conundrum of trying to achieve price stability amidst ongoing record fiscal stimulus. Taylor Rule analysis still suggest a Fed policy rate that is 75 to 150 bps lower would be appropriate.

I have previously noted the surprising and welcomed upturn in S&P Global Manufacturing PMI data throughout the 1^st quarter. The Manufacturing expansion found in these surveys contrast with the competing ISM surveys which find 17 consecutive months of sector contraction. A handful of regional surveys released last week were more inline with the economic weakness narrative. The Dallas, Richmond and Kansas Fed Indices all noted contracting economies across Manufacturing and Services while the Chicago PMI measure showed accelerating decline from its recent November peak.

Finally last week included the March PCE data with findings similar in impact to the CPI data for the month. Consumer inflation remains elevated above the 2% target with shorter period core inflation trends rising from the 4Q23 troughs.