Market Memo | April 2024

March is a fantastic month, with warmer weather and longer days ushering in the growth of spring. Judging from the S&P 500 TR index, spring is certainly in the air for investors. The index finished up 3.22% for the month, bringing the year-to-date total to a 10.56% return. While the pace of this growth is likely unsustainable, there are reasons to be optimistic that the returns can continue to stay positive for the remainder of the year.

Magnificent Seven or Fabulous Five?

Last year, the market was led by the Magnificent Seven stocks, which prompted concerns regarding overconcentration in the market. So far this year, the Magnificent Seven has become the Fabulous Five, with Tesla and Apple both negative on the year. Even so, the returns of the market have become broader, with financial companies, along with energy, healthcare, and industrials, helping to lift the market to new all-time highs. The number of companies outperforming the market is too long to list, but examples include Marathon Petroleum, Disney, GE, Caterpillar, American Express, Verizon, HCA Healthcare, Walmart, and JP Morgan according to data from FinViz.com.

Additionally, for the second month in a row, stocks of small and mid-sized companies have outperformed their larger peers, with the Russell 2000 TR index returning 3.58% for the month. Momentum has continued in an upward trajectory since the lows of last October.

Investor sentiment seems to be strong.

Flows into stock ETFs were $195 billion in the first quarter, up 60% compared to the first quarter of 2023 according to Morningstar. The CBOE Volatility Index or VIX, used as a proxy for investor fear, has remained low so far this year, hovering around 14% for most of the quarter. Additionally, the Federal Reserve (Fed) has indicated that rate cuts are still possible this year even as inflation continues to be sticky, and trending upward in recent readings.

If things were to take a negative turn in the economy, the Fed has room to cut rates and could also add back roughly $1.5 trillion to the balance sheet through asset purchases. Whether this is a good policy is a different question, but suffice it to say, the Fed has tools to work with. Consumers continue to play their part in the economy, with corporate earnings showing signs of growth, and GDP continuing to stay in positive territory. Even the uptick in unemployment to 3.9% did not negatively sway investor sentiment in the quarter.

International markets fared well for the month.

Both Developed and Emerging Markets (EM) posted positive monthly and quarterly gains. Japan has enjoyed a stock market resurgence in the first quarter, and there are signs that China may be beginning to slightly emerge from economic troubles. However, both Developed and EM stock markets continue to trail the US due to weakness in Europe, the wars in Ukraine and Israel, and concerns about the long-term structure of the Chinese economy.

Rate cut expectations are fading.

Bonds posted a monthly gain of 0.92%, as measured by the Bloomberg US Agg Bond TR index. For the quarter, rates drifted up as the market enthusiasm of an expected six interest rate cuts faded and became more in line with the Fed’s views of three cuts this year. Yields on 10-year Treasury bonds ranged from 3.87% to 4.34% in the quarter, which has provided elevated income for investors compared to the decade prior to 2022 but is not fully restricting economic growth.

Owning energy has been beneficial in stock portfolios, but the sector is a key concern for the bond market. Continued increases in oil prices will keep inflation high, hampering the Fed’s ability to reduce rates. Fed Chair Jerome Powell has signaled a desire to cut in multiple speeches this year, and in our opinion seems to be looking for a reason to reduce interest rates. So far, the lack of a decrease in inflation has not given him an opportunity to do so.

Gold is up.

Precious metals continue to break out with Gold up 8.94% in the month. Central Bank buying, concerns about government debt loads globally, and rampant inflation in countries such as Turkey and Argentina have caused citizens to lose faith in their currency. Inflation in these countries reached 68% and 276%, respectively, in recent readings. We believe precious metals will continue to benefit from Central Bank buying as more countries move to adopt trade agreements bypassing the US dollar.

Overall, it has been a strong start to the year in stocks and precious metals, with positive returns in most market segments. We continue to favor the US, relative to other stock markets and are encouraged by the broadening we have experienced in the past two months. Yields continue to be attractive in Fixed Income as an alternative to stocks.

Even though winter ended in the quarter, the bears are still hibernating. 

Investment commentary by Jason Flores, CFA, CAIA – Executive Vice President & Chief Investment Officer  at Central Trust Company.

At Central Trust Company, we continue to reassess the rapidly changing investment landscape for both risks and opportunities. If you would like to access our full monthly outlook and additional investment commentary, visit our Investments Learning Center. As always, if you have questions or concerns, please contact your Central Trust Company team. We are always ready to help.