First Quarter 2024 Update

April 30, 2024

Key Points

• The shape of the Treasury yield curve remained in the same inverted shape as compared to that at the end of the fourth quarter, but it shifted somewhat higher.
• The FOMC at its latest meeting signaled that it would maintain its current federal funds rate target range of 5.25%-5.50% as the data show that inflation has stabilized, albeit at levels that are still higher than the target of 2%.
• Economists cite several risks to the generally positive outlook, including persistent supply chain disruptions which are exacerbated by geopolitical tensions and natural disasters, uncertainties surrounding trade policies, and unexpected geopolitical developments. In addition, while the presidential election cycle does not directly impact the economy, markets will be paying increasing attention to developments in that arena.

1st QUARTER 2024 MARKET COMMENTARY

Below, we’ve highlighted 2024 broad market returns for the current quarter and year-to-date time periods:

Source: Refinitiv

THE GLOBAL ECONOMY

The US economy’s growth rate slowed somewhat in the fourth quarter of 2023 compared to the unsustainable pace of the prior quarter, but economists remain encouraged by the ability of the economy to perform well for so long. The economy’s above-trend growth rate resiliency continues to surprise analysts, who caution that heightened interest rates and still elevated inflation will eventually mean that consumers will increase their savings rate and growth will slow. The February employment report showed that employers added 275,000 jobs in the month, but that the unemployment rate was slightly higher at 3.9%. The Federal Open Market Committee (FOMC) maintained its federal funds rate target range at 5.25% to 5.50% as inflation data has stabilized at levels that are still above target, but which is expected to show improvement.

EQUITIES

Stock prices were mostly higher for the second consecutive quarter. With the exception of stocks in one sector, gains were broad-based. The economy’s continued above-trend growth, solid gains in the labor market, and an expectation that the FOMC will soon act to lower interest rates has buoyed stock prices. From the outset of the quarter the S&P 500 trended higher, closing out the quarter at its highest point. When the quarter ended, the S&P 500 Index had advanced 10.6%.  International stocks generated positive results during the quarter, and generally were in line with US equities. The MSCI EAFE Index of developed markets stocks was higher by 5.7%, while emerging markets stocks were higher, as the MSCI Emerging Markets Index advanced by 2.4%

FIXED INCOME

Fixed income securities’ prices were lower (and yields higher) during the quarter, as the bond market softened on concerns that inflation remains higher than the FOMC’s target level of 2%.  The FOMC at its latest meeting signaled that it would maintain its current federal funds rate target range of 5.25%-5.50% as the data show that inflation has stabilized, albeit at levels that are still higher than the target of 2%. The committee’s Summary of Economic Projections (SEP) included an estimate that the fed funds rate would be 75 basis points lower than current levels a year from now. This is a result of the FOMC’s aggressive interest rate tightening over the past two years has worked, and that inflation will eventually return to target.

SUMMARY

The US economy has recently performed above-trend and at unsustainable levels, and while the consensus among economists is that there will be an inevitable slowing in the months ahead, it will still perform better than most of the rest of the world. The global economy has been hampered by the lingering effects of the pandemic and its aftershocks, and while the US has come out of it fairly well, Europe, Canada, and Southeast Asia have struggled. Economists are maintaining a cautiously optimistic outlook for the US economy, and are considering several key factors that might influence growth trajectories. The first is the FOMC’s monetary policy, which analysts expect to become more accommodative in coming months following two years of aggressive interest rate increases to combat inflationary pressures. The FOMC will attempt to bring about a so-called “soft landing” for the economy, aiming to continuing to bring inflation down to its target level of 2% while at the same time sustaining consumer spending and business investment, critical drivers of economic activity. Second, the labor market continues to recover steadily and admirably from the pandemic-induced downturn, with employers adding jobs at levels exceeding expectations. The unemployment rate remains low, even though it has recently begun to tick up ever so slightly. Third, fiscal policies, including infrastructure investment initiatives and targeted stimulus measures, are expected to bolster aggregate demand and foster long-term productivity gains. These efforts aim to address infrastructure deficiencies, enhance competitiveness, and promote sustainable growth. Economists cite several risks to the generally positive outlook, including persistent supply chain disruptions which are exacerbated by geopolitical tensions and natural disasters, uncertainties surrounding trade policies, and unexpected geopolitical developments. In addition, while the presidential election cycle does not directly impact the economy, markets will be paying increasing attention to developments in that arena. Overall, while economists believe the US economy is poised for continued growth in the remainder of 2024, policymakers and investors would be wise to remain vigilant in navigating the evolving and emerging challenges.

Information provided is for informational purposes only and should not be construed as investment advice. The views expressed are current only as of the publication date, are based on information that St. Clair Advisors believes to be accurate, and subject to change without notice. All investment decisions must be evaluated as to whether they are consistent with your investment objectives, risk tolerance and financial situation. St. Clair disclaims any liability for any direct or incidental loss incurred by applying any of the information in this publication. Indexes are unmanaged and one cannot invest directly in an index. Past performance is no guarantee of future results.

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