Spring 2024 Market Commentary and Outlook

April 10, 2024

Market Recap

Overall, it was a very good quarter for the combined equity and fixed income markets. For the quarter, U.S. stocks rallied with the S&P 500 gaining 10.6%. International stocks also rose, with the MSCI EAFE increasing 5.7%. Bonds fell slightly, with the Bloomberg Barclays Aggregate Bond Index returning -0.8%.


Following a steep rise in the fourth quarter, the S&P 500 continued its rally rising 10.6% in the first quarter. This was the best first quarter performance since 2019. The rally began in earnest following the late-October lows, which kicked off a 5 1/2 month climb totaling 27.6% to end the quarter, finishing at fresh all-time highs.

The gains in the first quarter were broader than in 2023, which was dominated by a narrow group of mega-cap technology stocks dubbed the “magnificent seven.” Small cap stocks, as measured by the Russell 2000, were up 5.2% during the quarter, and international stocks, as measured by the MSCI EAFE, were up 5.8%. While the S&P 500 still lead the major indexes, the leadership within the large cap index appeared to broaden as well. Energy and Financials lead sector returns along with Technology. The “magnificent seven” narrowed to the “fab 4” with Tesla, Apple, and Alphabet falling back from the group.

Market gains during this rally have been fueled by improving investor sentiment and convincing evidence that growth in the economy continues to be very strong. The recent employment report showed unemployment at 3.8%, which is just above historic lows, and GDP growth of 3.1% for 2023. Growth this year is expected to be 2-3% and there is little indication that there is a risk of a recession coming anytime soon.

Despite the positive markets and robust economy, concerns remain for Fed officials and investors that inflation has lingered longer than expected. Although trending lower, the decline in inflation is happening more slowly than the Fed hoped. The consensus has been that the Fed would implement three rate cuts this year, the first of which is expected in June. However, with the economy showing strength, and inflation coming in higher than expected in recent readings, optimism for rate cuts has been diminishing. There are now many strategists who believe the Fed may cut only once or twice this year, if at all. Further, there is a growing minority of strategists that have suggested that the Fed may actually need to raise rates a little more this year to keep inflation at bay. We certainly hope this is not the case.

Although the market has been relatively calm in recent months, it remains quite sensitive to news about the Fed and their intentions for interest rates. In recent days, a strong rally reversed course mid-day to the worst sell off in several months when a Fed official suggested in an interview that the Fed may decide not to cut rates at all this year.

Contrary to popular sentiment, we are not hoping for aggressive rate cuts by the Fed. When the Fed begins cutting rates, it will likely be a reaction to negative developments in the economy. Presently, the economy appears to be performing well, so there isn’t an immediate need to take action to stimulate activity. Further, higher rates have been a boon to savers, as interest paid by banks and money market funds have rewarded depositors with cash savings that until recently yielded next to nothing. Instead of a sharp course reversal, our hope is that the Fed gradually lowers rates so that short-term rates return to the historic norm of roughly equaling the rate of inflation and that longer-term rates begin to slope upwards, representing a normalized yield curve and a healthy lending environment.

As we enter the spring, the field for the upcoming Presidential election has narrowed to a rematch of the last election, pitting incumbent Biden vs. former president Trump. As with every election, the campaigning and partisan bickering are sure to stir up concerns among investors. Although it may seem counterintuitive, history shows that regardless of who wins in November, allowing emotions or personal political leanings to guide investment decisions is much more likely to hurt, rather than help, portfolio returns.

Looking to the remainder of the year, our outlook remains positive for the economy and stock market. Not withstanding the rancor that will accompany the upcoming election, we expect the market to continue to rise this year, albeit with periodic fits of volatility. For our part, we rebalanced our clients’ portfolios at the end of the quarter. We trimmed the growth areas of the equity allocation and added to fixed income and international holdings.

Thank you very much for your continued confidence in our service and advice. If you would like to discuss our opinions, outlook, or your portfolio in greater detail, we would be happy to schedule a meeting or a conference call at your convenience. Lastly, don’t keep us a secret. If you know someone who would like help planning for their financial future, we will be pleased to speak with them to see if we can assist.