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Spring 2024<br/><sup><br/>Volume 32 | No. 2</sup>

Spring 2024

Volume 32 | No. 2

Market QuickTakes Q1 | 2024

 

  • Market momentum from the end of 2023 carried over into Q1 of 2024, with the Dow, S&P 500, Nasdaq, S&P 400, and MSCI World All-Cap indexes setting multiple All-Time Highs

  • Q1 2024 was the best First Quarter for the S&P 500 since 2019

  • S&P 500 gained 10.2% in Q1, pacing all US indexes, followed by the mid-cap S&P 400 and tech-heavy Nasdaq, which surged 9.5% and 9.1% respectively

  • Large-cap technology and growth stocks continued to provide leadership, while market breadth continued to widen encouragingly

  • The Dow Jones Industrials and small-cap Russell 2000 lagged but still posted solid Q1 gains of 5.6% and 4.8%, respectively

  • Optimism of Fed interest rate cuts in 2024 and stronger-than-expected economic news supported the soft-landing narrative

  • Stock gains extended overseas as well, with the benchmark MSCI EAFE index gaining 5.1% and Emerging Markets rising a modest 1.9%

  • Interest rates rose in Q1, following the powerful Q4 rally, as markets started reducing the expected number of Fed interest rate cuts

  • Benchmark 10-year Treasury Note yield rose 0.32% to 4.20% and the Bloomberg Aggregate Bond index lost 0.8%


Past Performance is No Guarantee for Future Success 

2024 Retirement Contribution Limits

Market Review

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

Don’t let headlines and short-term performance scare you out of the market

<h3><b>Market timing is a difficult task</b></h3>

Market timing is a difficult task

Our partners at Vanguard point out that few investors have been successful at consistently timing the market. However, for some, the strength of the recent equity market rally may raise concerns regarding the implications for future returns. Ultimately, the unpredictability of risk premiums over shorter horizons versus longer time periods is precisely why premiums exist, so a pullback, correction, or bear market drawdown can always be lurking around the corner.

However, as the Figure to the right illustrates, regardless of whether the past one, two, or four quarters have been positive or negative, between 60% and 80% of the time, the next one, two, or four quarters had positive results. Said differently, making investment decisions based solely on fear and recent performance can be risky, as the outcome is not likely to be in your favor.

Missing just a few key days can be detrimental to long-term returns. Therefore, maintaining a long-term perspective, discipline, and diversification is imperative.

Past performance is no guarantee of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Notes: U.S. stocks as represented by the S&P 500 through 1970; Wilshire 5000 from 1971 through April 22, 2005; MSCI US Broad Market Index through June 2, 2013; CRSP US Total Market Index thereafter.

Source: Vanguard Investment Advisory Research Center analysis using data from FactSet and Morningstar, Inc. Data as of March 22, 2024.

Pullbacks are normal for the S&P 500

Markets require investor patience and discipline&#160;

Markets require investor patience and discipline 

Even in their best years, markets have periods of volatility that require patience and discipline by investors. Pullbacks of 5% and corrections of 10% or more are common in any given year. Keeping a long-term focus helps investors weather these temporary market storms. 

The chart to the right from Yahoo! Finance shows the Annual Total Returns in green and the Worst Intra-Year Drawdown for each year in orange. Even in each of the Up Years, there is a corresponding Intra-Year drawdown. 

Click on Learn More below to view the Interactive version on the chart

Past Performance is No Guarantee for Future Results

Learn more

Financial Insights...

Presidential Election Years Have Been Good for Investors

Hartford Funds show us "Presidential Election Years Have Been Good for Investors."  "Elections can create uncertainty, but sitting on the sidelines could be a costly mistake." While past performance is no guarantee for future results, "stocks have had a positive return in 83% of Presidential Election Years; the S&P 500 has gained an average of 11.57% (1928-2023)." 

Read Now

Understand your Alternatives during this Time of Change

Losing a loved one is difficult and dealing with beneficiary claims can be challenging during grieving times. This guide from Capital Group provides guidance for spouse and non-spouse beneficiaries, including updated SECURE Act provisions for IRAs, Roth IRAs, and Retirement Plans like
401(k)s, 403(b)s, etc. 

Read Now

Building a Financial Foundation for the Next Generation

From our partners at MFS: Sadly, financial basics like budgeting and saving for retirement are not taught in high school or college for that matter. This piece from MFS Heritage Planning is a great primer to pass on to a child or grandchild to help build a solid
Financial Foundation for their future.  

Read Now

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NOTE: WAA Winter 2024 Model Portfolio Allocations Q1-Q2 2024 (Updated Jan-24) 

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Investor Note


Mutual Fund and Variable Annuity investment strategies, which include investing in specific sectors, foreign securities (both developed and developing markets), high yield securities, or small and medium sized securities may increase the risk and volatility of the funds/sub-accounts. Changes in interest rates may affect the performance of fixed income (bond) funds; if rates increase, bond values decrease and vice versa. Investors should consider the investment objectives, risks, and charges and expenses of the Mutual Fund and/or Variable Annuity carefully before investing.

The Mutual Fund prospectus (and summary prospectus, if available) and Variable Annuity prospectus contains this and other information. Please read carefully before investing. A Mutual Fund prospectus and Variable Annuity prospectus and contract can be obtained by calling your Nelson Rep at 800-345-7593 or the Mutual Fund and/or Annuity company directly.

Publisher: Nelson Securities, Inc.

The WEALTH ASSET ADVISOR is published quarterly by Nelson Securities, Inc., a Registered Investment Advisor. All rights reserved. It is a violation of U.S. copyright laws to duplicate or reproduce any article or portion of this publication without the written permission of the publisher.

Information and historical market data contained within this newsletter are taken from sources we believe to be reliable but, we can not guarantee its accuracy. Nelson Securities, Inc., or the publisher, will not be held responsible for actions taken based wholly or partially on information contained herein. Recommendations are of a time-sensitive nature and not a substitute for a comprehensive plan for investing. Each investor must consider suitability with regard to risk prior to investing.