First Quarter 2024 Market Commentary

As we close out the first quarter of 2024, we reflect on the steadfast progress of the previous months while setting our sights on the opportunities for the rest of the year. The S&P 500 led the way with a 10.6% increase in the first quarter. The Dow Jones Industrial Average also experienced gains, rising by 6.1% as traditional industries began to stabilize after a turbulent period. The Nasdaq Composite advanced by 9.3%, due to renewed investor confidence in technology and innovation-driven sectors. International markets showed a solid performance, with the MSCI/ACWI Index edging up by 4.8%, indicating a moderate recovery in global equities. Fixed income markets dropped slightly, with the Barclays Aggregate Bond Index down by -0.8%, as yields rose across the treasury curve.

The sector performance across various US equity benchmarks was notably positive, with broad gains across major sectors, punctuated by particularly strong performances in certain areas. The Technology sector continued to be among the top performers, up 12.7% in the first quarter, driven largely by significant gains in mega-cap tech companies like Nvidia Corp, which saw an 82% increase in its stock price.  The Communications Services sector achieved a 15.8% increase, making it the highest performing sector in the quarter. After a tough fourth quarter of 2023, the Energy sector rebounded strongly with a 13.7% increase, in light of rising oil prices amid geopolitical tensions. Financials also showed a strong recovery, increasing by 12.4% in the quarter, continuing its positive trajectory with a 31.4% increase over the previous five months. Industrials performed well with an 11% increase, contributing to the broader market gains. Real estate was the only sector in the red, albeit slightly, with a -0.05% decrease, impacted by current high interest rates.

Though the potential for unexpected macroeconomic shifts could impact market performance, the overall market sentiment was optimistic, driven by strong corporate earnings, consumer spending, and a robust labor market. Many of the leading economic indicators reflect a complex landscape of recovering supply chains, evolving consumer behaviors, and ongoing geopolitical tensions. Despite these challenges, equity markets have shown impressive strength. While progress is choppy, inflation continues its descent toward more stable levels, reflecting the success of monetary tightening policies implemented throughout the previous year. Core inflation, which excludes volatile food and energy prices, has trended downwards, a positive sign that past inflationary pressures are being mitigated effectively. This decline is crucial as we observe softening in sectors like housing, where prices are beginning to stabilize, aiding in the reduction of overall inflation rates.

Although rate reductions by the Federal Reserve are generally anticipated, market expectations for immediate and substantial rate cuts may be overly optimistic, with a more gradual adjustment likely as inflation components remain sticky. The Federal Reserve’s actions in the first quarter indicate a measured approach, with signals pointing towards maintaining current rates or minimal reductions if inflation does not continue its slowdown. This cautious stance seems to reflect an alignment with the broader economic indicators that suggest a gradual normalization of monetary policy. The central bank continues to emphasize its dual mandate of controlling inflation and maximizing employment, guiding its policy decisions. Employment levels are high, and consumer spending is resilient, indicating that the economy may avoid the much-feared hard landing.

The bond market’s reaction to interest rate expectations suggests a mixed outlook for rate-sensitive sectors such as real estate and utilities, which may face headwinds if the anticipated rate cuts materialize later than expected. Long-term bond yields, while showing signs of stabilization, continue to reflect a market that is cautious and adjusting to structurally higher interest rates, with investors advised to maintain a balanced approach in their bond allocations.

Looking forward, our outlook for the second quarter remains guarded but optimistic. The underlying economic data indicates resilience, but investors should exercise caution and balance focused risk-taking with high-quality asset allocations. We are continuing to strategically focus on value stocks, which seem poised for a higher lift as the market broadens out amidst better than anticipated economic strength. Moreover, we continue to emphasize the importance of portfolio diversification. Given the potential for increased volatility, balancing asset allocations and incorporating defensive stocks can help mitigate risks and capitalize on emerging opportunities. For the S&P 500, consensus estimates forecast year over year earnings growth of approximately 3.4% for the first quarter 2024. These figures suggest a modest improvement in corporate profitability, as companies navigate through a volatile economic environment.

Several key catalysts are expected to shape the market landscape in the second quarter and beyond. The Fed’s decisions on interest rates will remain a primary driver for market movements. Analysts are closely monitoring the Fed’s approach to inflation, with current expectations leaning towards the first rate cut to occur in mid-2024, provided inflation continues to align with target levels. Recent escalations between Iran and Israel have heightened tensions in the Middle East, posing potential risks and volatility to global markets, especially in the energy sector. Historically, such tensions have led to spikes in oil prices, which can increase inflationary pressures globally and impact economic conditions in energy-dependent countries.

Innovations in generative AI and Quantum Computing, particularly in natural language processing and machine learning, continue to transform sectors like finance, healthcare, and consumer services. Potential breakthroughs are expected to impact cryptography, drug discovery, and complex system modeling.

In the coming months it will be vital to stay informed about changes in economic indicators and central bank policies. The landscape is ripe with both challenges and opportunities, and navigating it will require a balanced and informed approach. As always, our Firm stays the course and remains committed to monitoring the economic landscape and adjusting our strategies to align with emerging opportunities. We look forward to helping you achieve your financial goals, and thank you for your continued trust and partnership.

Please feel free to reach out to us with any questions or to schedule a portfolio review. We are here to assist you in every step of your investment journey.

Joseph P. Biondo
CEO, CIO and Portfolio Manager

Sources: Index and sector returns – Nasdaq, Bloomberg; Market outlook – Morningstar; Inflation, Interest rates – BlackRock; Earnings data – Nasdaq

The information set forth regarding investments was obtained from sources that we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. Past performance does not guarantee future results.