Portfolio Research Director, Kevin E. Donovan, CFA, and Senior Financial Adviser, Parker G. Trasborg, CFP®, discuss markets in the first quarter of 2024 and expectations of what to try to expect from the Fed for the rest of the year.
Parker G. Trasborg:
Hi, my name is Parker Trasborg. I’m a Senior Financial Adviser here with CJM Wealth Advisers, and I’m joined again today by Kevin Donovan, our Portfolio Research Director. Kevin and I will spend a couple minutes talking about markets in the first quarter of 2024. So, unlike last year with the bank failures that we saw in the first quarter and in 2022, the war breaking out in Ukraine, we really had no blockbuster news stories here so far in the first quarter of 2024. Kevin, but we have been keeping close tabs on the Federal Reserve, watching their every move, seeing what they’re going to do, and keeping an eye on the inflation figures. What transpired here throughout the first quarter?
Kevin E. Donovan:
Yeah, this really had an impact on the bond market. So we’ve had some inflation numbers come in that were a bit stickier than expected, a little bit higher than expected, not too much, but everyone’s hoping for lower inflation numbers. And the Fed, we’re waiting to see when they’re going to cut interest rates. So in addition to the inflation numbers being a little higher than expected, we’ve had stronger than expected economic numbers, and that has helped the stocks. So stocks did pretty well in the first quarter. Let’s look at the chart and we’ll see what the performance was like. The first line up on top, that dark blue line is the S&P 500, and that’s up 10% in the first quarter. So a really strong return there. The next level down, we have the Dow Jones Industrial Average and the International Stock Index were up about half of the S&P, about 5%. And then bonds down below had a slight loss of less than 1%, but still disappointing when we expected some good numbers or some good expectations that the Federal Reserve would cut interest rates sooner.
But the S&P, even though it outperformed by a wide margin the Dow Jones Industrial Average, it wasn’t driven primarily by those magnificent seven tech stocks that led to the outperformance last year. We did see some good numbers from Nvidia and Amazon, some good performance there, but Apple was down 10% in the quarter, and other big tech names were in the mid single digits. So it wasn’t just tech that was driving the performance, it really broadened out across the stock market.
So for instance, if you look at performance by industry, the energy sector was the best performing sector in the first quarter, followed by financials. So those are not the typical growth names that we saw outperform in the previous year. On the bond side, we are seeing a decline as investors wait to see when the Fed is going to move on inflation or on interest rates in response to inflation. So inflation is not spiking up, but it’s not coming down quite as quickly as we would’ve hoped at the beginning of the year. At the start of the year, investors were very optimistic that we would see six interest rate cuts this year, and it really peeled back those expectations now to two, maybe three interest rate cuts.
Parker G. Trasborg:
Yeah, so, great first quarter, especially coming off of a wonderful fourth quarter of 2023. We’re filming this here on April 10th and we had a higher-than-expected inflation reading this morning, as you kind referenced before, which has upset markets a bit. I won’t let you off too easy, and you just hinted at it a little bit. If you could dust off your crystal ball, what are you forecasting for interest rate cuts and the number and when they will start?
Kevin E. Donovan:
Yeah, I think the thing you want to do is avoid the daily market expectations of what market expects the Fed to do. The Fed had said, for example last year, they would expect three interest rate cuts this year. By the end of last year, the market was expecting six and the Fed kept saying three. The Fed is still saying three, and the market is now saying two to three. So I think we just trust the Fed here that they kind of know what they’re going to do going forward. Maybe three, maybe two. I think right now, we’re looking at what the timing is going to be on that, and once we see the Fed move to cut interest rates, we’ll see bond yields decline. And when bond yields decline, bond prices go up, which means good news for bond investors. We saw some of that in the fourth quarter of last year where bonds really, they were up 6%, 7% just in that quarter alone. So that’s what we’re hoping for later on this year when the Fed does eventually finally cut interest rates.
Parker G. Trasborg:
Great. So we’ll continue to track Jerome Powell’s every move here to make sure that he’s keeping on task. And I know we joke around a little bit, but with the uncertainty surrounding the markets, it just kind of underscores the importance of keeping a diversified portfolio and a long-term perspective with your goals in mind. So that does it for today. Again, my name is Parker Trasborg. Thank you, Kevin, for the insights. Again we are CJM Wealth Advisers, and we will see you next time. Bye-Bye.
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