There has been an optimistic start to the year with global stock markets registering strong gains. The U.S. Economy has been more resilient than anticipated with ongoing enthusiasm surrounding Artificial Intelligence (A.I) Heading into 2024, analysts predicted that inflation and the Federal Reserve’s next move would be indicative of the narrative over coming months. At its second gathering in March, the Fed held rates steady. Although rate cuts continue to be expected this year, the pace may be slower than analysts initially anticipated.
Global Economy
Global bond and equity markets ended the first quarter on a high note. Amongst the major markets, China was the only outlier with stocks ending Q1 slightly lower amid ongoing investor skepticism of its economy. The Eurozone experienced strong gains with the information technology sector leading the charge. Equity markets in the UK were up and Japan had an especially strong rally fueled by increasing optimism over the economy which resulted in the Nikkei reaching an all-time high. Other Asian markets returned modest gains. The European Central Bank, The Bank of England, and the Federal Reserve all proceeded with caution resulting in governmental bond yields adjusting in response. In general, interest rates increased across global developed markets.
- The MSCI ACWI Ex-USA Index, which measures performance of world markets outside the U.S., advanced by 4.7%
- Japan – strongest performer with increase of 11%
- Latin America – poorest performer with decline of 4%
- Emerging markets saw 2.4% gain
U.S. Economy
The resiliency of the U.S. economy has continued to surprise analysts. An above-trend growth rate has persisted, but analysts caution that consumers may soon need to increase their saving rate due to ongoing interest rate concerns. Consumer spending, residential spending, and government investment were primary drivers of the economy’s gains. In March, U.S. small-business optimism weakened in response to the Fed’s decision to hold rates steady. Consensus amongst most analysts is that interest rate cuts could begin in June.
Equity Markets
The U.S. stock market returned a positive 10.02% for the quarter, outperforming non-U.S. developed markets and emerging markets. Artificial Intelligence helped to outweigh areas of concern such as higher for longer interest rate thoughts and election year volatility. The S&P 500 was boosted by strong corporate earnings with communication services, energy, and information technology sectors leading the charge. Real Estate was the only major sector that had negative returns for the quarter.
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- U.S. Growth Stocks (11.41%) outperformed Value (8.99%)
- Large cap (5.59%) outperformed small cap stocks (5.18%)
Fixed Income
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- Interest rates generally increased in U.S. treasury market for quarter
- U.S. 10-year Treasury Yield increased by 32 basis points, to positive 4.20%
- U.S. 5-year Treasury Yield increased by 37 basis points, to positive 4.21%
Commodities
The Bloomberg Commodity Total Return Index was positive 2.19% for the quarter. Unleaded gas and low sulfur gas oil were the best performers, with an increase of 17.18% and 16.62% respectively. Both gold and silver advanced for the quarter.
Looking Forward
Economists believe that the US economy is situated for continued growth throughout 2024, but investors should set their expectations that the above-trend growth recently experienced is not sustainable. Several key factors are likely to contribute to the growth trajectory including monetary policy, the labor market, and fiscal policies including infrastructure investment and targeted stimulus measures. Continuing risks include supply chain disruptions, uncertainty surrounding trade policies, and geopolitical upheaval. In addition, 2024 is an election year, and while this does not directly impact the economy, markets tend to pay attention to the outcome.
As we move forward, some emerging trends in innovation, in addition to A.I., are on the horizon including health care innovation, shifting global trade and supply chains, and agriculture innovation. Last year’s “Magnificent 7 Stocks” were all the buzz, but it is important to remember that historically, the hot stock of the moment is not guaranteed to stay on top. Looking back, Sears was once one of the top-10 stocks in the U.S., AOL dominated the internet during the 1990s, and the Blackberry was the phone of choice 15 years ago.
At Paradigm Wealth Management we strive to balance our clients’ needs with the current economic environment. While closely monitoring all the factors that can potentially impact our portfolios, we remain steadfast in our philosophy, encouraging a long-term plan, diversification, and the avoidance of emotional reactions to market fluctuations. Please reach out with any questions. We value your trust and are always available to have a conversation!
The Paradigm Wealth Management Team
References: Fidelity Investments, Morningstar, Bloomberg, Forbes, Dimensional