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Market Commentary - February 2024

Read the Winter 2024 WAA for our Market Quicktakes, Q4|2023 Review and 2024 Outlook, and Much More

February 2024

S&P 500 and Dow set New All-Time highs in January

Coming off an explosive rally in November and December to close the year with impressive returns, the S&P 500, Dow Jones Industrials, and Nasdaq posted more modest gains in January to start 2024. However, the benchmark S&P 500 and the Dow set multiple new All-Time highs in January, with the Dow closing above 38,000 for first time ever.

The S&P 500 led the market higher gaining 1.6%, while the Dow posted a 1.2% gain. The tech-heavy Nasdaq, led again by the Magnificent Seven, added 1%. What is more impressive are the double-digit gains over the past three months, with Nasdaq surging 18%. The S&P 500 and Dow are up 15.5% and 15.4% respectively over that stretch.

Small- and mid-caps stumbled to start the year, with the Russell 2000 and S&P 400 slipping 3.9% and 1.8% respectively. This reflected a more mixed start to the year overall for the market, yet both measures are up 17.2% and 15.5% over the past three months as well. 

Fueled by the Fed pivot in October on market expectations of its interest rate hiking policy ending, coupled with strong and resilient economic growth, robust job gains, and unemployment remaining below 4%, optimism for an economic soft-landing has continued to grow. US GDP grew 3.3% annualized in Q4, beating expectations, and 3.1% in 2023 overall. While still expected to slow in 2024, recession expectations continue to shrink. The Fed last raised policy rates in July 2023 and has been on pause since.

Markets overseas were mixed to start the year as well. The benchmark MSCI EAFE gained a modest 0.5%, while emerging markets skidded 4.7%. Both felt the headwinds of the stronger US dollar in January, which gained 2% on higher US interest rates, and dragged on international stock returns.

Following one of the strongest two-month periods on record for bonds, interest rates rose across the yield curve in January and the Bloomberg Aggregate Bond Index dipped 0.3%; the 10-year Treasury Note yield rose 0.11% to close at 3.99%.

At its first FOMC meeting of 2024, Jan 30-31, the Fed noted continued progress of inflation declining towards its 2% target, the economy remains robust, and the jobs market solid. The Fed left policy interest rates unchanged again, as expected, but importantly signaled the end of its rate hikes. The bond market has been pricing in more rate cuts than the Fed, like 6-7, and starting as early as March; however, Fed comments leading up to the FOMC caused market interest rates to back up and rate cut expectations lowered to 5-6. At the end of 2023, the Fed forecasted three rate cuts by yearend, but noted at the January meeting it will need to be more confident inflation is heading towards its 2% target before cutting rates thus pushing the first rate cut out to May or June. Nonetheless, the emphasis is on rate cuts versus rate hikes, which the market likes.

February Update

The market quickly digested Fed Chair Powell’s comments following the month-end Fed meeting, and stocks have surged higher. The S&P 500 and the Dow have set fresh All-Time highs, and the S&P 500 closed above 5,000 for the first time ever on Feb 9. Mid-cap stocks have edged into positive territory for 2024 and small-caps are now down less than 1%. Coupled with the powerful double-digit moves over the past three months, a pullback or consolidation would be a normal process at some point. 

However, the bond market has seen interest rates edge higher yet in early February, with the 10-year Treasury Note yield hitting 4.17% as the market adjusts its Fed rate cut forecast. The Bloomberg Aggregate Bond Index has dipped to -1.5% YTD. Given a framework of higher bond yields across the yield curve, providing a downside cushion, any rate cuts by the Fed in 2024 could provide solid total returns for bonds.

We are now in a presidential Election Year and volatility is to be expected. Historically election years have been positive, but past returns are no guarantee for future results. However, our partners at Capital Group provide valuable insight for investors to weigh and remain resilient with their investment portfolios with their Guide to Investing in an Election Year. Analyzing over 90 years of data and 23 election cycles, the Guide's focus is helping investors invest with confidence in an election year, regardless of political affiliation. 

Click to Download the Guide to Investing in an Election Year

We remain cautiously optimistic for 2024 with solid return expectations for both stocks and bonds, though likely more modest than last year, as the soft-landing scenario prevails. We are also looking for the market to broaden out beyond mega-cap growth stocks. Yet, challenges persist, and volatility remains in the forecast as the conflict in Gaza raises geopolitical tensions and the humanitarian crisis mounts. Risks for it to spread beyond the region are concerning and oil prices have risen off recent lows.

With volatility, resolve is required, and we continue to encourage investors:

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

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