Q1 Stock Market Recap

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Wow! The first quarter of 2024 posted an impressive 10% return domestically, with headline setting new records across many of the indices globally. One client asked, “Is it still a good time to invest?” which made me realize we may need to temper expectations for the months ahead.  Yes, it is still a good time to invest, but investing in a volatile market takes good discipline, sound strategy, and a long-term view. No one expects the 10% quarterly gains to continue exponentially, for a 40% annual return, right? Therefore, it is good to remind ourselves that there will be dips along the way and we can even utilize market pull backs in a tax efficient manner if appropriate.  That being said, Q1 was an excellent quarter we should be grateful for.

The Wilshire 5000 Total Market Index, which is the broadest measure of U.S. stocks, posted a first quarter gain of approximately 9.95%.[i] Large Cap stocks, as measured by the S&P 500 Index, gained about 10.16% in Q1.[ii] Small Cap stocks, or companies with a market capitalization of $250 million to $2 billion, posted a 5.18% gain to start the year, as measured by the Russell 2000 Small-Cap Index.[iii] The tech-heavy Nasdaq Composite Index gained approximately 10.78% so far this year.[iv]

International investments did moderately well to start the year. In the first quarter of last year, the Eurozone reported they were in a technical recession. Comparatively, in Q1 of 2024, the EAFE Index which measures developed foreign economies posted a gain of 4.15%.  Emerging Market stocks of less developed countries, as represented by the EAFE EM Index, gained 1.69% in dollars, during the same 3-month window.[v]

Real estate, commodities and utilities represent the alternative components of a diversified portfolio. These sectors performed interestingly in the first quarter. The Wilshire U.S. REIT Index, which broadly represents the real estate market, posted flat results for the first three months of 2024.  On the other hand, commodities, as measured by the S&P GSCI Index posted a gain of 8.74% in Q1.[vi] Gold prices are up an impressive 9.08% to start the year recording $2,257 an ounce. Finally, utilities, as measured by the S&P 500 Utilities Index, were up 3.59% by the end of the first quarter.[vii]

The bond yield curve continues to be inverted, meaning shorter term bonds are paying a higher return than longer term bonds. Intuitively, if you are committing your money to a longer investment term, you expect to be paid more for your longer commitment. However, in an inverted yield curve, you can actually get a higher return on a shorter investment term.  Currently, the 30-year U.S. government bond is yielding 4.46%. 10-year treasury bonds are yielding 4.32%, and 1-year Treasuries are offering a rate of about 5.07%![viii] However, stay cautious. An inverted yield curve typically indicates that investors are predicting uncertainty in the market ahead.[ix]

Looking towards the remainder of the year, the Federal Reserve Board is expected to cut interest rates possibly three times later this year. That could bring the current Federal Funds Rate target of 5.25% to 5.50% down to 4.50% to 4.75%. Lower interest rates could provide a boost to the real estate market as long-term investors are more likely to borrow at lower lending rates. That could lead to increased consumer spending and industry revenue in the real estate sector. Lower interest rates are generally positive news for corporations as well. Lower interest rates translates to lower borrowing costs, making profit margins more favorable. This may lead to a strong corporate earnings season, which could mean continued strong stock performance later in the year. However, the Federal Reserve Board is focused on tackling inflation, which has remained surprisingly sticky at 3.2% at the end of Q1 2024. The Fed’s inflation target remains at 2%, so more Federal work is ahead, whatever that entails. Unemployment is at 3.9%, which is higher than 2023, but still considered good, as unemployment under 4% is considered full employment by economists. Finally U.S. GDP grew at 3.4% in the first quarter of the year.[x]  This is great news considering GDP was above expectations and higher than our recent historical averages.[xi]

I am grateful for the positive quarterly performance, but new market highs always give me uncertainty as well. I am mindful that market dips follow market highs, and that nothing goes up in a straight line.  I am also grateful for reasonable market pull backs, as they ensure that stock prices accurately reflect the value of the corporations they represent.  Further, stock pull backs can also present good loss harvesting or investment model update opportunities.  In other words, while there is a lot to be excited about in the year to come, we should also remember that investing is never a smooth ride. Now is a good time to lock in some gains through rebalancing and keep a long term investment approach.  A key component to successfully investing for the long-term is understanding your investment risk tolerance, so you can stay committed to an investment strategy long enough for it to work. A Certified Financial Planner™ can guide an investor to also pick quality investments that give broad exposure at a reasonable price, and separate out lower profitability companies from the spectrum of investments. If you think your financial planning strategy could use a review, reach out to your financial advisor today. 

[i] https://www.wilshire.com/solutions/indexes
[ii] https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview
[iii] http://www.ftse.com/products/indices/russell-us 
[iv] https://www.nasdaq.com/market-activity/indexes
[v] https://www.msci.com/real-time-index-data-search
[vi] https://www.spglobal.com/spdji/en/index-family/commodities/broad/#overview
[vii] https://www.spglobal.com/spdji/en/indices/equity/sp-500-utilities-sector/#overview
[viii] http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
[ix] http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
[x] https://www.theguardian.com/business/2024/mar/20/federal-reserve-interest-rates
[xi] Bob Veres Insider Information

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