Quarterly Newsletters
Quarterly Newsletter for the 1st Quarter 2024
The first quarter of this year seems to be following in the footsteps of a strong 2023. On a price return basis, as of March 31, 2024, the Dow Jones Industrial Average (DJIA) was up 5.62%, the Standard and Poor’s 500 (S&P 500) was up 10.16%, and the NASDAQ was up 9.11%. The MSCI all Country World ex-US Index was up 4.04% for the quarter. In the fixed income environment, the Barclays Merrill Lynch 3-month Treasury Bill Index yielded 1.29%, but the Bloomberg Aggregate Bond Index actually dropped 0.78% during the quarter.
Fixed Income Market (Bonds): As we have stated in past newsletters, the FOMC (Federal Open Market Committee or the Fed) has raised interest rates 11 times in 18 months- from 0% to over 5%. Their goal is to lower inflation to 2%. Based on the announcements made by the Fed after their December meeting, they have pivoted away from future interest rate increases toward future interest rate decreases. This excited both the fixed income market and the equity market. As we began 2024, the markets were expecting up to eight (8) rate cuts, totaling 1.75%. This was a significant divergence from the Fed’s verbalized projections of around three (3) rate cuts. Currently, the market is predicting two (2) rate cuts with the first coming around the time of our presidential election. As a result, longer-duration bonds suffered through the first quarter. The combination of a strong U.S. growth and sticky inflation is raising concern the Fed may be substantially more cautious and somewhat selfish with their rate reductions. Nonetheless, rate cuts are certainly more probable than rate increases.
US Equity Market (Stocks): The final estimate for 2023 GDP showed that the U.S. economy grew faster than expected- up 3.1% for the year, compared to the trend growth of 2.0%. Additionally, 12 consecutive months of real wage growth has improved consumer sentiment and aided in the continued economic revival. These factors, coupled with mostly strong corporate profits, low unemployment, and low jobless claims have provided economic strength and may lend assistance in avoiding a recession. The market, year to date, has issued gains alongside a greater breadth, with more companies participating- not just the tech stocks (i.e. the magnificent seven- Microsoft, Meta, Apple, Amazon, Alphabet, Nvidia and Tesla). Overall, the U.S. economy is strong but does have some concerning signs. Continued inflation affecting food costs, energy prices and housing costs along with higher personal debt are among the risk factors that could hamper our future.
Overseas Equity Market (Stocks): Global economic resilience continues, despite the wars in Israel and Ukraine. Eurozone inflation has cooled, the Japanese fourth quarter 2023 GDP has been revised upward, the Bank of Japan formally ended their negative interest rate policy and the stock markets have rallied in Germany, France and Latin America. The PMI’s (Purchasing Managers Index) across Europe, Japan and many emerging market countries point to continued improvement in business sentiment, boding well for future market returns.
Conclusion: Lingering geopolitical uncertainty, an upcoming presidential election, and ambiguous interest rate future makes this year a difficult year to navigate. We believe the U.S. stock market will be rocky but will continue to produce positive results. Thus, we remain positive on the U.S. stock market. As the Fed seems to have temporarily paused its interest rate decrease timeline, we continue to favor short-term and intermediate-term fixed income vehicles. This will change once we see some indication that rate reductions are forthcoming- possibly in the third or fourth quarter. Finally, on the overseas front, we continue to remain positive on developed international stocks and think that emerging markets may be appropriate for a percentage of one’s portfolio- should it meet your risk tolerance.
In closing, permit us to express our sincere appreciation for the opportunity to be of service to you. As always, should you have any questions or wish to discuss the above in more detail, please do not hesitate to contact us.