Posted on April 8, 2024 by Katherine Fox.

First Quarter 2024 Stock Market Performance & Economic Outlook

Why has the stock market done so well in the first quarter of 2024?

Katherine (00:20)

The top line highlight in 2024 so far is that the stock market has done really, really well. The S &P 500 was up 10 % in the first quarter of 2024.

Why was it up so high? A few reasons.

First, corporate profits were really high.

For the most part, corporations have been able to pass on price increases to consumers and they are seeing their profits stay and even grow over the course of the first quarter.

The second reason was enthusiasm about artificial intelligence and the prospects of artificial intelligence.

One thing that you always need to remember when you think about the stock market performance is that, stock market returns are forward looking.

So they don't reflect what exactly is happening right now in our economy, they reflect what analysts and investors and big institutions think things will look like in the months and years to come.

So when you have something like AI that has a huge amount of promise,and has delivered in some cases, but has not fundamentally reshaped every area of society. That can actually help markets grow a lot even before it's done that because there's so much enthusiasm and excitement about what the future could hold that that props up or brings up share prices of companies who people think will be positively impacted from a profit standpoint because of artificial intelligence.

The third reason that markets were up in the first quarter of 2024 is because of continued optimism about interest rates coming down and about the Federal Reserve starting to cut rates later in 2024.

Remember market thought that the Federal Reserve was going to start cutting rates in March of this year. That didn't happen.

So there may still be some over optimism in the market about when and how often the Fed is going to cut rates in 2024, but it is expected that at some point this year they will have at least one rate cut.

What are the current risks in the stock market in April 2024?

One thing that, concerns me about how the market looks right now is that it is a very excited market. You can see that really well in cryptocurrency.

Cryptocurrencies have rebounded significantly from earlier lows.

Bitcoin is way up in part because in January there were 11 new Bitcoin ETFs that launched so it was easier for people to invest in Bitcoin through these ETFs. These ETFs now have 50 billion dollars of assets in them.

So it's 50 billion dollars invested through these Bitcoin ETFs, which is a huge amount of money and a huge amount of speculative investment.

That amount of speculation always makes me nervous when I see it in the market, not because I'm sure that it's going to come before a market downfall, but when there is that amount of optimism and that amount of speculation, it's frothy. And when things are frothy, it makes me concerned about what's underneath the surface that we're not seeing.

Where are the strengths and weakness in the US economy in April 2024?

Looking at the US economy as a whole, as opposed to just the stock markets, there are some bright spots in the US economy.

The bright spots are that unemployment is still really low, consumer spending is still really strong, and inflation is starting to trend down. So price increases are starting to moderate, prices are starting to come down by most measures.

But there are also some weak spots, especially in the numbers of credit card delinquencies, so people who aren't able to pay their credit card bills.

A recent New York Times article that found that missed payments on auto loans are increasing at the fastest rate in the last 10 years.

Both of these are worrying signals for the health of consumer discretionary spending. And if people aren't able to continue spending money, if people aren't able to make their loan payments, then that can signal a broader problem in the economy as a whole.

Another big weakness in the economy right now has to do with work from home and office vacancies.

Office occupancy is at 50% or less right now in the across the United States on average.

Office vacancies are also very high.

Office occupancy is talking about offices that are leased, but how many people from those companies are actually in the office.

Office vacancy is about office space that isn't actively being leased.

Office vacancy rates are high and they are expected to rise over the next year or so as leases end and companies choose not to renew them.

In Portland, I was just reading that our offense vacancy rate is around 32 % right now. It's expected to be 40 % in 2025 because of those leases that end and that aren't renewed by the companies that hold them.

Overall markets have been up so far this year. There may be some signs of weakness, but broadly people are optimistic about the future of the market. The economy has some real strong points, a couple of warning signs, but nothing that is pointing clearly in the direction of a recession.

Actually, as we move closer to the Federal Reserve starting to get rates, it becomes more and more likely that they have been successful in avoiding a recession, although nothing is ever certain.

How will the 2024 presidential election affect the stock market?

Historically, when the market starts off strong in the first quarter, it generally continues to go up throughout the rest of the year. It ends up at the end of the year.

This is even more true in presidential election years.

I always caution very strongly against relying on what the stock market has done historically to predict what's gonna happen this year, but if you're interested in historical trends, that's what the data says.

There is a lot of political and social upheaval and worry around the election and markets don't necessarily feel that same. What you worry about in the election in 2024 is not necessarily something that markets are also worrying about.

Why is it important to diversify your portfolio?

We have seen a lot of performance come in the first quarter of the year from the S&P 500, from large companies within the US. It is so important not to get caught up in that performance.

Don’t put all of your eggs in that basket. More than ever, it is important to keep a broadly diversified portfolio that has exposure to companies in the United States that are small, medium, and large companies, and also to have a globally diversified portfolio, even though those asset classes haven't been performing as well over the past several periods as U .S. large cap stocks.

The dominance of large companies in the US is not gonna continue on indefinitely and when we have a cyclical shift in the market, you're gonna wanna make sure that you own those other asset classes because when they take off, you don't wanna be left behind.

Let’s take the next step together

Learning how to understand financial markets is not easy. Investors can encounter a wide variety of different situations requiring knowledge and finesse to manage. If you need more help, you can reach out to Katherine Fox, CFP® and CAP®, a financial planner for inheritors to learn how Sunnybranch can help you build a plan to manage and invest your wealth.