The first quarter of 2024 was a record-smasher for markets, even as Wall Street contended with higher-for-longer interest rates.
Investors ended 2023 on an exuberant note. Markets overcame a regional banking crisis and geopolitical turmoil and entered a powerful bull market. The economy avoided a widely expected recession. Traders eagerly anticipated the Fed would begin the first of six rate cuts this year in March.
But a spate of hot economic data and warnings from Fed officials forced investors to recalibrate those hopes to align with the Fed's projected three cuts, likely beginning in June or July.
While the stock market saw intermittent sell-offs, it continued marching higher as robust corporate earnings and a strong labor market renewed hopes that the economy will avoid a recession. The S&P 500 index is on track to climb 10% for the first three months of the year, as of Wednesday's close. The Dow Jones Industrial Average and the Nasdaq Composite are on pace for 5.5% and 9.3% gains, respectively.
The S&P 500 on Wednesday logged its 21st record-high close of the year. The first 17 were recorded during the first 50 trading days of 2024, the largest tally during that period since 1998, according to Bespoke Investment Research. The Dow and Nasdaq have also notched repeated record highs.
Some of the Magnificent Seven tech stocks have stumbled after spurring last year's banner rally. Apple shares have fallen 10% this quarter on worries about lackluster sales in China. Tesla shares are on track to decline 27.6%. Alphabet shares have gained 8% so far this year but are trailing behind robust double-digit gains from Nvidia, Meta, Microsoft and Amazon.
More than just those four tech stocks have gained this quarter. The S&P 600 index, which tracks US small caps, hit a 52-week high this week after the Fed earlier this month reiterated its forecast of three rate cuts this year. The price of gold surged to multiple all-time highs. Bitcoin also reached fresh highs for the first time since 2021 after US regulators approved spot exchange-traded funds pegged to the cryptocurrency.
What's next? Leslie Thompson, chief investment officer at Spectrum Wealth Management, says that she expects the rally to continue broadening on strong corporate earnings. Companies in the S&P 500 saw earnings grow 4.3% during the fourth quarter of 2023 from the prior year, according to FactSet data. Analysts polled by FactSet expect S&P 500 earnings to grow by more than 10% for all of 2024.
In another positive sign for markets, history suggests that new highs at the beginning of the year often portend positive annual returns. The S&P 500 has seen an average 15.8% return in years that it notched new highs in January and February, in contrast to an average 9.2% gain for all years, according to CFRA Research data going back to 1954.
But some market indicators, including Warren Buffett's favorite, suggest stocks are overvalued compared with the performance of the economy. And
investors aren't letting their guard down, even though they're feeling upbeat. Zachary Hill, head of portfolio management at Horizon Investments, says he's keeping careful watch for signs of stubborn inflation in the coming months that could derail the Fed's plans.
Still, "we don't see a ton of major risks out there," said Hill.
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