2024 First Quarterly Letter

By David K. MacLeod, CFA, CFP®

Stocks started the year strong with the S&P 500 gaining 10%, continuing the late 2023 rally. Tech stocks led, while value stocks, especially in the energy and financial sectors, also saw robust gains. Bond returns were modest due to a slight rise in long-term interest rates as the 10-year U.S. Treasury yield rose to 4.3%.

As we mentioned last quarter, U.S. economic growth has exceeded expectations, boosting corporate profit outlooks and driving the stock market higher. The Fed’s models project first quarter real GDP growth to be close to 3%, defying economists’ predictions that growth would stall out this year. Inflation pressures are easing, but the higher prices realized since 2020 are here to stay. Economists now say the next recession won’t arrive until at least 2025. That would mean higher interest rates will stick around longer than expected.

As we look ahead, there’s little doubt that the 2024 U.S. presidential election will lead the news cycle. Market volatility often increases around the presidential primary season. However, according to Capital Group, patient investors benefit as U.S. stocks tend to perform better than average in the 12 months following the presidential primaries. As always, we don’t try to time the markets around election expectations, recognizing the inherent uncertainty of future policy changes (and unexpected consequences).

Despite significant risks – both short-term, like potential technology sector supply chain disruption from a conflict in Taiwan, and long-term, such as a U.S. debt crisis – the stock market continues to reach new all-time highs. Record highs sometimes make investors uncomfortable, yet stocks remain a high potential return asset class for fundamental economic reasons. So, it’s not uncommon for stocks to hover near or at record levels.

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