The first quarter of 2024 turned out to be a positive one for investors, with most major market indices posting healthy gains in the quarter. The S&P 500, a broad measure of the U.S. stock market, rose by approximately 10.6% during this 90-day period. It was a great start to the year and a continuation of the powerful rally that closed 2023.
Small-cap stocks, often considered riskier investments, did not fare quite as well but did show promise later in the quarter. The Russell 2000 Index, which tracks the performance of small-capitalization companies, rallied by 5.2% from the start of the year through the end of March. This performance could be attributed to investors’ increasing appetite for risk as economic conditions showed signs of improvement. Also, with large-cap stocks having done so well the past few years, investors may be inclined to broaden their investment risk profile by adding exposure to areas of the market that had lagged in relative performance, like small-cap stocks.
International stocks also had a strong showing, with the MSCI EAFE Index, which tracks developed markets outside of the U.S. and Canada, gaining around 5.8% during the same period. Investors were encouraged by the resilience of the global economy amid ongoing challenges, such as persistent inflation and geopolitical tensions. Even though wars in Ukraine and Israel continue, global trade was relatively stable given global strife. Again, relative valuation (the US stock market looks expensive compared to international markets) may have led to investors adding international exposure.
The bond market, however, continued to face headwinds as the Federal Reserve maintained its hawkish stance on interest rates. The anticipated easing and rate cuts that some had expected to start as soon as March have yet to come. The consensus estimate is that the Fed will now start easing rates in June and do so three times by year end. If and when the Fed starts cutting interest rates, then the bond market should rally. The Bloomberg Barclays U.S. Aggregate Bond Index, a broad measure of the U.S. bond market, posted a modest decline of around -0.8% in the first quarter of 2024.
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The positive performance of the markets in the past 90 days can be attributed to a combination of factors, including better-than-expected corporate earnings, signs of cooling inflation and the resilience of the U.S. and global economies in the face of challenges. However, investors remained cautious, as the specter of potential recession and ongoing geopolitical tensions continued to loom.
One of the biggest areas of interest in the markets, especially the U.S. markets, is in the AI (artificial investment) space of the stock market. About six months ago, I tried to use AI to help draft my market update, but it failed miserably. I tried again today, and it had improved, but it is nowhere near reliable. Unfortunately, even though investment index returns are public knowledge, it got the performance wrong on every single index! (Rest assured, I provided the accurate figures.) However, the grammar and logic to get things going was really valuable, as it saved me some time. Maybe this technology will make life better. I remain skeptical but invested. We did rebalance our portfolios towards the end of the quarter to take advantage of the great start to the year. Basically, we took some profits from stocks and spread the proceeds across other investments. With a great start to the year, enjoy spring.
Mike Kauffelt
Co-CIO, Bill Few Associates, Inc.
Data from Bloomberg, Claude (AI assistant), Franklin Templeton and The Wall Street Journal
