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North River Wealth - 1Q 2024 Market Update Thumbnail

North River Wealth - 1Q 2024 Market Update

Sometimes watching rerun episodes can be boring, but investors are likely happy with the results coming out of the quarter. 2024 kicked off the year with an extension of what we experienced last year. The US stock market continued its dominance against most global stock markets, while increasing bond yields caused slightly negative returns for the broad US bond market. 

Source:  J.P. Morgan Asset Management1

Market Returns

Large-cap US stocks, as measured by the S&P 500, returned 11% for the quarter, moving the trailing 1-year gain to nearly 30%.

Small-cap US stocks, represented by the Russell 2000, continued their move in positive territory with a return of 5% for the quarter, moving its trailing 1-year gain to 20%.

International markets also moved upward, with the MSCI EAFE (comprising developed Europe and Asia) improving 6% for the quarter and 15% over the last twelve months, primarily driven by a resilient Japanese economy. Emerging markets stocks, despite continued struggles in the Chinese market, also remained in positive territory returning 2% and 8% over the same time periods.

Rising interest rates hurt bond returns to start the year with the US bond market down about 1% for the quarter, but still slightly positive over the last year. The yield of the 10-year Treasury bond moved from 3.88% to 4.20% during the quarter.

Fed Update

The Fed held interest rates stable during the quarter and hinted that rate declines are still in the works in 2024. Fed Chair Jerome Powell is expecting inflation to continue to ease and the market is still pricing in about three rate cuts during the year.

As we mentioned in our market outlook post, we expected the Fed to move more cautiously than the market expected, but with interest rates likely nearing their peak, a modest decrease in rates (not only in the US but globally) should provide more certainty to the bond market. Powell also mentioned that an unexpected weakening in the US labor market could also cause the Fed to bring rates lower, faster.

Can Stocks Continue Their Recent Dominance? 

We believe there are a few reasons we have experienced this recent “Goldilocks” scenario. Markets are a leading indicator and quickly reflect all available information. With the Fed forecasting rate cuts, borrowing becomes cheaper and a way to further stimulate the economy.

The AI frenzy has also helped drive markets forward. Think back to your college economics classes and what is one thing that can help increase growth in developed economies? Technology. Despite many unknowns and potential bubble scenarios, one thing clear is that nearly all companies are continuing to invest, research and implement some type of AI to help improve productivity.

With most of the strong market returns still driven by AI, there also remains significant opportunities for smaller US companies, developed Europe and China to rebound. Although there have been some bright spots, these markets have largely trailed large US companies over the past year.

Could there be a market pullback? Certainly, and at some point, there definitely will be. BUT…no one was predicting 26% returns for the S&P 500 last year or an 11% increase to the start of this year, so stay disciplined and don’t try to time the market. Optimism remains.

Items to Watch

The AI race – with every company pouring resources into this sector, how will this translate to company and sector returns? As with anything, there are winners and losers and the race to the top will remain fierce.

Global supply chain – with the Key Bridge collapse near Baltimore, global trade may slow as the port was a major hub for vehicles and agricultural equipment.

Election in focus – Biden/Trump Round 2. Buckle up for what will undoubtedly be an interesting election. Both the Presidential election and control of Congress remain toss-ups at this point.

Geopolitical conflicts – the US election will also continue discussions around Russia/Ukraine, the Middle East and global trade.

Crypto rise – Bitcoin and many other cryptocurrencies continued to hit new highs during the quarter, helped by a risk-on environment and an increase in available ETF’s; we do not directly hold any cryptocurrency in client portfolios, but we are also watching the sector more closely these days. Could we get to a point where we include this as part of client portfolios? Perhaps, but probably a topic for another day.

Authored by Stephen Blahovec and Michael Rausch of North River Wealth Advisors.  We are an independent, fee-only financial planning and investment management firm located in Pittsburgh, PA servicing clients locally and across the country.  To learn more, contact us here.

  1. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/weekly-market-recap/

This content is developed by North River Wealth Advisors from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.