The first quarter of 2024 was largely a continuation of the strength the stock market exhibited in 2023. The S&P 500 advanced nearly 11% in Q1, following a strong 2023 that saw the index rise 26%. Large-capitalization technology companies again led the way, as the Magnificent Seven averaged a 13% gain for the year through March, while the remainder of the S&P 500 was up a more modest 6%. In contrast to the lockstep move amongst the Magnificent Seven last year, the dispersion of returns amongst this celebrated group in the first quarter was notable. Nvidia was the strongest performer, riding investor enthusiasm over artificial intelligence to a greater than 80% gain in Q1. At the other end of the spectrum, Tesla shares fell 29% as demand for electric vehicles cooled.
Overall investor sentiment has been supportive of risk assets, as belief has increased the Federal Reserve will be able to engineer the historically difficult “soft landing” by bringing down inflation without a meaningful economic slowdown. Inflation has come down from the peaks achieved in 2022, the economy has remained resilient, and consensus expectations reflect double digit earnings growth in each of the next two years. Add to this Fed’s indications it has likely reached the end of its hiking cycle along with expectations for multiple rate cuts this year and it makes sense why market participants have been bullish.
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