Market Insights: First Quarter 2024

Stocks Start off Strong in 2024

The first quarter of 2024 is now behind us with a solid performance for the major averages. Both the market-cap weighted and equal-weighted S&P 500 posted gains, a positive signal that the market is broadening. Throughout the quarter, investor focus was split between artificial intelligence (AI) and interest-rate cut expectations by the Federal Reserve. Hotter-than-expected inflation and a strong economy led to a reversal in market expectations for rate cuts by the Fed and a rise in the U.S. 10-Year Treasury of 32 basis points (bps). Despite this, equity markets were able to climb the wall of worry with hopes of a soft landing.  The Atlanta Fed’s GDPNow forecast model estimates the U.S. economy expanded 2.3% in the quarter, helping to further this hope.

Earnings results were positive, led by the Magnificent Seven. During the first quarter, companies reported earnings results for Q4 2023. Overall, earnings for the S&P 500 were up 4.1% year-over-year versus the 1.5% expected before earnings season began. There was significant dispersion among sectors with four posting double digit earnings growth - Communication Services, Consumer Discretionary, Utilities, and Information Technology - and four posting double digit declines - Energy, Materials, Health Care, and Financials. The Magnificent Seven – Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla – saw earnings grow 59.4%. Excluding these companies, earnings for the remaining 493 companies of the S&P 500 declined 4.3%. Interesting to note of the magnificent seven, 4 outperformed the S&P 500 while 3 underperformed, with two of them – Apple and Tesla – actually losing money for the quarter. The NASDAQ 100 also underperformed the S&P 500. 

A soft-landing outcome is being driven by consumer spending as the main driver of stronger-than-expected economic growth.  This is supported by a solid labor market and rising real wages. With the labor market still tight, wage pressures remain, and are helping to offset some of the impact of higher prices and elevated debt servicing costs. As we begin to turn our focus on the next quarter and the rest of the year, we will want to remain mindful that a recession is still a possibility.  The Fed's rapid rise in rates is still reverberating through the economy. This means there will be a laser focus on the health of the consumer. With optimism and sentiment at highs, along with the S&P 500 trading at a lofty 21x earnings expectations, the market remains vulnerable for short-term volatility. However, we would view a market correction as an opportunity, as the Fed stands ready to reverse course on rates, while corporations have continued to adapt with reduction of costs to improve their bottom lines. 

We thank you for your ongoing confidence and trust. Our team will remain dedicated to helping you successfully navigate this market environment.

Please do not hesitate to contact us with any questions, comments, or to schedule a portfolio review.  

The Primoris Wealth Advisors Team