Back On Top
The US stock market (as measured by the S&P500 index) has now fully recovered from the bear market of 2022 and reached new highs during the first quarter of 2024. The timing of this recovery was in line with long-term averages; bear markets have historically lasted an average of about nine and a half months and taken about nineteen months to recover. In this instance, the recovery occurred four months quicker.
All three major US market indices had strong positive movement for the quarter, ranging from +6.14% for the Dow to +10.56% for the S&P500. International stocks shared in the growth throughout the quarter, though they slightly trailed their US counterparts. Stock market volatility has also been greatly reduced this year. Thus far, we’ve experienced only one trading day where the market moved more than 2%. For comparison, in 2022, that occurred on forty-six days!
Fixed income markets lagged slightly during the first quarter. Going into the year, markets had expected (and priced in) five to six rate cuts by the Fed. As the quarter progressed, the Fed indicated that three cuts were anticipated, causing interest rates to move up slightly and temporarily hurting bond prices. As of their late March meeting, the Fed is still targeting three potential cuts this year and the market sentiment has now adjusted to match. If that plan holds for interest rates, the high money market and CD rates enjoyed by many over the last two years will begin to fade. On the other hand, lending rates should also start coming down, to the delight of home and car buyers.
The deposits made into CDs and money markets may be worth revisiting in light of the expected decline in rates. During the last four interest rate cycles, once the Fed was done hiking rates, both stocks and bonds enjoyed more than double the return of cash holdings over the subsequent one-year and five-year periods. While it may feel “safe”, clinging to cash-like holdings in a declining rate environment can lead to worse outcomes over time due to the reinvestment risk and opportunity cost that arises.
From a broad economic perspective, early data suggests that the US GDP grew at a healthy rate during the first quarter. Personal incomes also rose and consumer sentiment appears to have increased in March after dropping slightly during February. Together these contributed to surprising resilience in consumer spending levels, which have held steady (or grown) despite higher interest costs, student loan restarts, and other headwinds. We occasionally reference the Conference Board’s Index of Leading Economic Indicators which, after 23 straight months of declines, finally moved positive during the first quarter. Overall, the US economy appears strong by most metrics.
Since 1926, there have only been two years (1987 and 2011) in which the stock market had a positive January/February and did not go on to end up positive for the year. If the underlying economic data remains strong, the odds are good for 2024.
Happy Spring!
The PWM Team
