Broker Check

Market Commentary - April 2024

Read the Spring 2024 WAA for our Market Quicktakes, Q1 Review, and Much More


April 2024

Stocks hit record highs in Q1
as year-end momentum continued

Following up on a strong year overall for both stocks and bonds, including a blistering close to 2023, can be a challenge. However, the momentum carried over for stocks in the First Quarter of 2024 and in record setting fashion.

Stock gains were broad-based in Q1, which is encouraging, yet again led by large-cap growth and technology stocks. However, the Magnificent Seven that dominated 2023 with 29% of the S&P 500 market cap, was more mixed in Q1. Nvidia, Microsoft, Meta, and Amazon contributed 47% of the S&P 500’s leading 10.2% Q1 gain. The remaining three, Tesla, Apple, and Google all posted Q1 double-digit losses. The S&P 500 posted its best Q1 since 2019, set 22 record highs along the way, and closed above 5,000 for the first time ever. It was the S&P 500’s fifth straight month of gains.

The mid-cap S&P 400 jumped 9.5% in Q1, while the tech-heavy Nasdaq gained 9.1%, and each set multiple record highs during the quarter. Although the Dow lagged with a 5.6% gain, it did set multiple record highs in Q1 including closing above 39,000 for the first time ever. The small-cap Russell 2000 also lagged in Q1, posting a solid gain of 4.8%, but showed the broad-based nature of the First Quarter.

Q1 gains extended overseas as well, with the benchmark MSCI EAFE index gaining 5.1%, while the MSCI Emerging Markets index added a modest 1.9%. Foreign markets for US investors carried a headwind with the rising US dollar that coincided with higher US interest rates. In local currency, the MSCI EAFE index gained 9.2%, while Emerging Markets gained 4%. Just like the Fed, the European Central Bank (ECB) is projecting rate cuts in 2024.                                                                                                                                                                                      

We began 2024 with market expectations of 5-6 Fed rate cuts by the end of the year, which were formed by the Fed’s pivot and comments in early November and fueled the year-end rally. However, as economic data continued to be better-than-expected, including GDP, strong jobs growth, low unemployment, coupled with a stickier CPI inflation reading in February at 3.20%, those rate cut expectations began to steadily wane. By the end of Q1 and the economic soft landing in 2024 becoming the dominant narrative, market Fed rate cut expectations fell closer to the Fed’s projection of three.

Interest rates moved higher across the yield curve in the First Quarter, with the benchmark 10-year Treasury Note yield rising 0.32% to 4.20%. Given the dramatic decline in rates in November and December, a back-up was not unusual, especially with the stronger economic numbers. The Bloomberg Aggregate Bond index dipped 0.8% in Q1.

 

The Outlook

Rather than consolidate 2023’s strong gains and year-end rally, the momentum for stocks carried throughout the First Quarter leading to multiple record all-time highs for the S&P 500, Nasdaq, S&P 400, and the Dow.

Many of our reasons for optimism in 2024 remain, despite more elevated valuations in the US. S&P 500 corporate earnings are expected to grow 11.5% for 2024, according to Nasdaq Market Intelligence Desk, helping to support those valuations. A key variable is interest rates and the expected rate cuts by the Fed, which ratcheted down in Q1 to three by year-end. Valuations overseas remain attractive. 

  • Recession risk in 2024 remains low with an economic soft landing the base case
  • The Fed is projecting three rate cuts in 2024; market expectations are now more inline with the Fed as the economy continues to grow solidly, unemployment remains low, and inflation proved stickier in February and March making the “last mile” to the Fed’s 2% target more challenging
  • Presidential Election years have historically been positive, though no guarantee for future success

 

April Update

Volatility has increased in April with the market recalibrating higher interest rates resulting from better-than-expected economic news and another sticky CPI inflation print for March, which has pushed out Fed rate cut expectations further in the second half of the year though remain at three cuts. The benchmark 10-year Treasury Note Yield has risen 0.42% to 4.62% in April, ending 4-19-24. As a result, stocks have pulled back 5%+ from the end of March. The pullback has been widely anticipated for some time and is a healthy consolidation from the record highs to start the year.  Further downside is possible and volatility remains in the near-term forecast, though the full year outlook remains cautiously optimistic and positive at this juncture. 

During periods of volatility, it is important for investors:

  • Remain well-diversified
  • Maintain discipline and patience
  • Focus on the long-term
  • Review your Risk Tolerance

The Spring 2024 WAA has two timely pieces on market volatility for perspective: 

  • Don’t let headlines and short-term performance scare you out of the market
  • Pullbacks are Normal for the S&P 500

 

Call your Nelson Advisor today at 800-345-7593 to discuss any concerns and review your portfolio.  

 

~Your Nelson Securities Team   

 

*Past Performance is No Guarantee for Future Results