Record-Breaking First Quarter Sets 2024 Markets on Fire Amid Higher Interest Rates
The first quarter of 2024 has shattered records, marking an impressive rally on Wall Street even as investors grapple with higher-for-longer interest rates.
As 2023 drew to a close, the market's spirit was undeniably buoyant. Overcoming challenges such as a regional banking crisis and geopolitical unrest, the markets surged into a powerful bull market. Contrary to the gloomy recessional forecasts, the economy showcased its resilience. The anticipation was high among traders for the Federal Reserve to roll out the first of six anticipated rate cuts by March.
However, a series of hot economic data coupled with cautioning remarks from Fed officials prompted a recalibration of expectations, aligning them with the Fed’s projection of three rate cuts, likely to commence between June and July.
Despite intermittent sell-offs, the stock market’s upward trajectory persisted, buoyed by robust corporate earnings and a resilient labor market. These factors reignited the hope that a recession might be successfully evaded. As of Wednesday’s close, the S&P 500 index is poised for a 10% climb in the first three months of the year, with the Dow Jones Industrial Average and the Nasdaq Composite tracking gains of 5.5% and 9.3%, respectively.
Wednesday witnessed the S&P 500 achieving its 21st record-high close for the year, a feat not seen since 1998, according to Bespoke Investment Research. The Dow and Nasdaq have also consistently set new records.
However, not all is rosy in the tech sector. Apple has seen a 10% decline this quarter, largely due to concerns over its performance in China. Tesla shares took a significant dip of 27.6%. In contrast, Alphabet managed an 8% gain but fell short when compared to the impressive advances of Nvidia, Meta, Microsoft, and Amazon.
The rally wasn’t confined to these tech giants alone. The S&P 600 index, a beacon for US small caps, hit a 52-week high, further buoyed by the Fed's recent reaffirmation of its plan for three rate cuts this year. Both gold and Bitcoin hit multiple all-time highs, the latter reaching fresh peaks not seen since 2021 following the US regulator's nod for spot exchange-traded funds pegged to the cryptocurrency.
Looking ahead, Leslie Thompson, chief investment officer at Spectrum Wealth Management, forecasts a broader rally propelled by strong corporate earnings. With the S&P 500 companies witnessing a 4.3% earnings growth in the fourth quarter of 2023, expectations are set for a 10% growth throughout 2024.
Historical data from CFRA Research dating back to 1954 underlines that new highs in January and February often hint at positive annual returns, with the S&P 500 averaging a 15.8% return in such years.
Yet, caution prevails amidst optimism. Market indicators suggest a potential overvaluation of stocks against economic performance, a view echoed by Warren Buffett. Additionally, there’s an acute vigilance for signs of stubborn inflation in the forthcoming months, which could thwart the Fed's plans.
In conclusion, while the path ahead seems predominantly optimistic, the markets remain wary of lurking challenges, poised to navigate through inflationary pressures and recalibrate strategies as necessary to sustain the momentum.
Analyst comment
Positive news. The market is experiencing a record-breaking first quarter with a powerful bull market. Despite higher interest rates, the stock market continues to rise due to robust corporate earnings and a resilient labor market. The S&P 500, Dow Jones, and Nasdaq Composite are all tracking gains. However, caution remains as there are concerns about the tech sector, inflation, and potential overvaluation of stocks. Overall, the market is expected to continue rallying with strong corporate earnings, but challenges must be navigated to sustain momentum.
