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First Quarter 2024 Market Commentary

First Quarter 2024 Market Commentary

April 09, 2024

After a great finish to 2023, many investors expected markets to take a step back in early 2024 but that was not the case in the first quarter.  During the first three months of the year, domestic large cap stocks rose by +10.6%, domestic small cap stocks increased by +5.2%, international stocks were up +5.8% while the US bond market declined slightly by -0.8%.1 

 

Many of the themes that propelled markets to excellent results in 2023 continued in the beginning of 2024 but the control seems to be fading with leadership emerging from different areas of the market as opposed to just a handful of stocks.  Take for example the so-called “Magnificent Seven” (Apple, Amazon, Alphabet, Meta, Microsoft, NVIDIA, and Tesla) which led markets for most of 2023.  They produced an average return of +75.7% for the year, outperforming most indices and pushed the growth stock category up +42.7% for the year.  The value stock category as a comparison rose by +9.5%, underperforming by more than 30%.  If you contrast that with the first quarter, the difference dropped to 2.4% (Growth +11.4, Value +9.0%) which represented a significant decline from the previous year. 1 A similar story can also be found if you look at market sectors where only three sectors outperformed the S&P 500 in 2023: Information Technology, Communication Services & Consumer Discretionary.  The “Magnificent Seven” are components in all three of those sectors.  As a comparison in the first quarter, five sectors outperformed the index: Communication Services, Energy, Information Technology, Financials, and Industrials.  Both themes represent a positive development because markets with increased market breath (number of stocks up vs down) and more balanced leadership create a more resilient investing environment when the inevitable market volatility sets in. 

 

Pivoting to fixed income, bonds struggled during the first quarter as the Federal Reserve’s more accommodative message from December began to shift as inflation continued to linger and the economy remained strong.  During the quarter, all three readings for CPI inflation remained above the Federal Reserve’s long-term target of 2.0%.  In addition, job gains remained solid with nonfarm payrolls increasing by 303,000 in March while keeping the unemployment rate below 4.0%.2 Despite both headlines not moving in the direction the Federal Reserve desired, they reiterated at their March meeting that they expect three rate cuts by the end of 2024. 

 

As well as markets have performed over the past six months, we do expect volatility to start playing more of a role throughout the balance of the year.  We still have an uncertain geopolitical environment with two ongoing conflicts around the world, the 2024 United States elections rapidly approaching and an undefined timetable of when the Federal Reserve will start cutting rates. 

 

As always, we appreciate your trust and confidence in all of us at MSA Financial. Should you have questions or would like to schedule time to review your portfolio or discuss the economic environment, do not hesitate to contact us.