New Beginnings: 2nd Quarter

April 1, 2024

While U.S. stocks were mixed last week, the S&P 500 ended the first quarter of 2024 up slightly over +10%. Performance was quite concentrated with only five stocks driving half the gain, and NVDA (up over +80%) accounting for a quarter of the indexes return by itself. Small caps, as represented by the Russell 2000, lagged for 1q24, but outperformed large caps in March as market performance began to broaden out.

Earnings expectations for 2024 improved throughout 1q24 due to carryover from a strong Q4 earnings season. With the decline in real-time real interest rates throughout late 4q23 and most of 1q24, the P/E ratio for the S&P 500 rose from 19.8 to 21.2. Valuations increased for the 5th straight month for the first time since 2013. As they have for a few years now, international equities lagged YTD, with stocks in Europe and Emerging Markets (mainly China and India) increasing +4.60% and +1.90%, respectively, in 1q24.  Japanese equities continued their dramatic recovery from a multi-decade period of little to no investor interest.

The 10-year Treasury yield increased +33 bps over the 1q24 to 4.20%, while the Fed’s policy-sensitive 2-year interest rate increased +37 bps to 4.62%. Oil prices rose back over $80/bbl amid a stable U.S. economy and production support from OPEC+. The U.S. once again started buying WTI oil to refill the Strategic Petroleum Reserve. Gold soared to a fresh all-time high of $2,230/oz, rising +8% for the quarter.  Bitcoin surged to over $70,000 on ETF optimism and forth coming “halving”.

While the markets were closed Friday, a large amount of economic data was released, mostly stronger than expected, which is contributing to an early market selloff today.  The first part of April is historically a weaker and slow time in the markets as 1- companies are in a stock buyback blackout window, 2- investor cash flows changed seasonally due to Tax Day approaching, 3 – large asset allocators often adjust weightings versus YTD leadership, and 4 – little if any fundamental corporate data is released until 1q24 EPS reports begin in a week or two.

A recap of last Friday’s economic data:

  • Personal consumption expenditures (PCE) rose +0.8% in February (0.3 ppts above estimates)
  • Personal income increased +0.3% in February (0.1 ppts below estimates) Wages and salaries were still up 0.8%.
  • After inflation and taxes, real disposable personal income fell -0.1% after a flat start to the year. This is bad for consumer spending momentum over summer months.
  • Personal saving rate dropped to a -3.6% (a 14-month low) from 4.1%. This is bad for the sustainability of the current consumer spending.
  • The Fed’s key PCE price indices slowed versus the previous month’s pace. This is good news.

Click here to watch the Oak Harvest Weekly Stock Talk: How to Manage Your Retirement Portfolio Amidst 2024 Election Uncertainty and Market Fluctuations

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