2024 - Q1 Quarterly Keynote

BY: RYAN P. JOHNSON, CFA, CFP® - MANAGING DIRECTOR OF INVESTMENTS

The first quarter ended with a new high for the S&P 500. Earnings growth expectations helped fuel the rally, which kept going despite higher interest rates. Higher rates pushed bond prices lower, resulting in a small loss for the Aggregate index, though our clients’ exposure to shorter-term corporate bonds and alternative funds typically resulted in a gain.

March was the fifth straight month of 1%+ gains for the S&P 500 and the index posted a double-digit gain in the first quarter alone. In February, the S&P 500 crossed the 5,000 mark for the first time and was recently over 5,250 – a level that might have felt impossible roughly 15 years ago when the index bottomed at 667 during the great financial crisis. For 2024, S&P 500 earnings growth is expected to be 11%, though expectations typically fade a bit throughout the year. Surprisingly, the Technology and Consumer Cyclical sectors did not outperform in the first quarter due to pullbacks in index heavyweights Apple and Tesla, underscoring that it is a market of stocks and individual performance matters. Apple’s weight in the index fell from over 7% to under 6% by the end of the quarter. After such strong recent stock returns, some may feel like it could be a bad time to invest in stocks. However, past 5-month win streaks and periods of 30% gains in 12 months have been followed by very high instances of positive forward 1-year returns. Still, it is important to remember that corrections are a normal feature of bull markets. We feel it is noteworthy that stock market drawdowns of 5% or more have occurred in 38 of the past 40 years and drawdowns of 10% or more have occurred in 22 of the past 40 years.

Bond yields rose throughout the quarter after hitting recent lows in late December. The 10-year Treasury yield, for example, started the year at 3.88% and ended the quarter at 4.21%. Decent economic reports and somewhat persistent inflation readings pushed out expectations for when the Fed might start cutting rates. Expectations were also lowered for how many Fed cuts might occur this year. Recently, the Fed spoke of one to three rate cuts and the market is looking for that the first cut to come at the June 12th meeting. Typically, the Fed cuts rates in response to economic challenges, but this time they are trying to engineer a rare “soft landing” where inflation slows while jobs remain strong.

Recent economic reports have been mostly positive. The latest monthly jobs report showed unemployment is still historically low at 3.8%. The ISM Manufacturing report showed growth after 16 months in contraction territory, while the ISM Services report continued to show growth. The Conference Board Leading Economic Index (LEI) was positive for the first time in 2 years and the final read on Q4 GDP was 3.4%. Lastly, recent inflation readings have also been decent, with the Fed’s most watched indicator showing 2.8% year-over-year inflation.

From our team to you, we thank you for your continued trust and referrals.

Ryan P. Johnson, CFA, CFP®
Managing Director of Investments

RISKS AND IMPORTANT CONSIDERATIONS

Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.