2024 | 1st Quarter
2024 First Quarter Market Commentary
Markets continued their upward climb in the first quarter following up on the strong returns in 2023. For the first quarter the S&P 500 returned 10.6% with the latest twelve-month return amounting to almost 30%. Factors contributing to the strength in the market included, the continued belief that the Federal Reserve will cut interest rates later in the year, persistence in corporate earnings and economic growth, and ongoing economic stimulus by the various Federal spending initiatives taken over the past few years (Infrastructure ACT, Inflation Reduction Act). Large company stocks, particularly those oriented towards technology and communications, continued to be the market leaders, but there was a broadening of returns to the small and mid-cap sectors of the market. This is generally seen as healthy for the overall market and a sign that investors are confident enough in overall conditions to expand their risk tolerance. U.S. stocks again outpaced international markets. Developed international markets returned roughly 6% and emerging markets returned 2.4% as stronger economic growth and the ability of the economy in the U.S. to adapt to higher interest rates caused investors to favor U.S. equities.
All but one equity sector posted positive gains in the quarter. The Communications, Technology, and Energy sectors posted the largest gains while the Consumer sectors and Healthcare also had positive returns. Only the Real estate sector was negative due to persistently high post Covid vacancy rates and the number of commercial mortgages that will need to be refinanced at higher rates over the next several years. This has also had a negative effect on the banking sector, particularly for regional and local banks.
Bond markets finished the quarter slightly negative as the prospect of interest rate cuts was pushed farther out into the year due to continuing strong economic conditions and inflation that is still well above the Fed’s 2% target. High yield debt was the strongest performing bond sector and was the only sector with a positive return due. This indicates that there is an increased belief the U.S. will avoid a recession and default rates will remain stable.
Overall, economic conditions for U.S. corporations remain favorable. Business and individual spending has remained positive, and supply chain issues related to Covid have mostly dissipated. Some sectors have been affected by interest rates that have remained higher for longer than expected, such as housing and banking, but increased financing costs have not yet produced a large pullback in investment or spending.
The largest factor in investors’ minds going forward is the timing of Fed rate cuts. Late last year there was hope for as many as six cuts in 2024. With inflation remaining stubbornly above the Fed’s target and economic growth steady, rate cut expectations have been reduced to one or two, later in the year. Despite the Fed increasing short-term rates from essentially 0% to over 5% to combat inflation, government spending has remained very high and is very stimulative to the economy. This has resulted in the conundrum of the Federal Reserve’s efforts to cool inflation via rate increases being hampered by deficit spending on the Federal government side.
The current spending levels are ultimately unsustainable. Annual deficits of roughly $2 trillion and an overall debt level of $34 trillion will at some point cause bond market dislocations if unaddressed. However, neither political party shows any willingness to deal with the issue, particularly in a presidential election year. Going into an election season that is gearing up to be highly contentious and continuing global conflicts, we could see increased market volatility. As always, we feel the proper way to mitigate these risks is through proper asset allocation and an emphasis on quality securities.
As always, please do not hesitate to contact us with any questions.
Jonathan F. Kolle, CFA®
President, Chief Investment Officer
Daniel A. Morris, M.S.
Co-Chief Investment Officer
Joseph K. Champness
Director
Shawn R. Keane, CFP®
Vice-President
Cindy de Sainte Maresville, CFP®
Certified Financial Planner
Rusty Giles
Director of Marketing
James V. Kelly, CFA®
Director
The foregoing content reflects the opinions of Smithbridge Asset Management and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.
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