Monthly Market Commentary

These monthly market commentaries share a synopsis of the U.S. financial markets with intelligent insights.

Latest Commentary:

In March, the US equity markets again hit new highs, overseas markets showed more life, and even bonds posted positive returns for the month.  Q1 2024 delivered the fourth best S&P first quarter return since 2001.  Carried early on by what may become known as the Fabulous Five (sorry Apple and Tesla), US equities broadened as the quarter ended with the Energy sector leading for the month.  In fact, in March large cap value stocks outperformed large growth stocks which were impacted by the decline in a few flagship growth names.

The positive momentum US stocks have shown since the start of the year has spread to different regions around the world.  Japanese stocks continue to push higher as the Bank of Japan seeks to put an end to negative interest rates.  Select European markets delivered positive returns due to favorable earnings forecasts across sectors.  The bond market continues to play the waiting game as economic signals point to eventual rate cuts.

Here are a few observations about what occurred across the public markets during the month.

Overall

• The S&P 500 Index was up 3.2% in March.  The Q1 return was 10.6% and the one-year return was 29.9%.
• The MSCI EAFE Index was up 3.2% in March.  The Q1 return was 5.8% and the one-year return was 15.3%.
• The Bloomberg Aggregate Bond Index was up 0.9% in March.  The Q1 return was -0.8% and the one-year return was 1.7%.

Domestic Equity

• Equity market returns were positive across all segments in March, continuing 2024's strong start. While markets pushed out expectations for Fed rate cuts, optimism from positive earnings and a goldilocks economic environment provided support for equities.  Energy stocks rallied in March on higher oil and gasoline prices while AI related tech names pushed higher.
• Value stocks reversed the trend and outperformed growth stocks in March, led by Energy and Materials.  Weakness in some of the Magnificent 7 stocks weighed on growth indices in the month though growth stocks are ahead for the year.  Mid-cap stocks outperformed small cap and large cap stocks for the second month in a row, highlighting a broader market rally.

International and Global Equities

• Foreign stocks delivered returns in line with the S&P 500 in March.  Japan and select European markets hit new highs driven by a weaker Yen that slipped to a 34-year low and excitement around innovations in the healthcare industry, led by Novo Nordisk.  For Q1, US stocks nearly doubled the returns of foreign developed markets due to the economic and geopolitical issues impacting many countries.
• Favorable March returns in select emerging markets were offset by the ongoing challenges impacting Chinese equities.  China is now seeing signs of domestic investors losing confidence in the country's economic policies.

Fixed Income Markets

• The US bond market rebounded in March, delivering positive returns across all segments.  Interest rates moved in a tight range as key inflation data keeps the Fed in a position to potentially deliver a June rate cut.

Specialty Markets

• Commodities rebounded, benefitting from an uptick in oil and gasoline prices. REITs posted positive returns, recapturing some of the losses from the sharp drop in January.

US Equity Sectors

• In March, sector performance was positive across the board led by Energy, Materials, and Utilities.   For the quarter, Communications Services and Energy were the top performers while Real Estate was the only negative sector.

Dear Valued Investors,

The first quarter is in the books, and it was an excellent one for stocks. The S&P 500 index rode a resilient U.S. economy, easing inflation, rising corporate profits, and anticipation of summertime rate cuts from the Federal Reserve (Fed) to solid gains in March, the fifth straight winning month, and the best first quarter since 2019.

With stocks having done so well, it’s natural to think about selling. If you haven’t rebalanced in a while and hold more equities than targets, shifting some stocks into bonds or alternative investments may make sense. If your investing time horizon is long, the case for trimming equities is stronger because valuations matter more three to five years out.

If you’re focused on the next few months, consider that the latest data suggests the economy is growing steadily and inflation pressures continue to ease. Investment in artificial intelligence — still in the early innings — is giving corporate profits a boost and looks more like the early-internet period of the mid-1990s than the speculative bubble in 1999–2000. Double-digit gains in S&P 500 companies’ profits this year, which seemed like a long shot at the start of the year, are now possible.

History also suggests staying the course. Since 1950, the S&P 500 has risen 93% of the time in the 12 months following a five-month streak, with an average gain of over 12%. And down years are rare after strong first quarters. So, while stocks are due for a pullback, as the choppy start to April suggests, it’s extremely difficult to sidestep a 5–10% decline. It’s tough to make a case for a big drop — one that might make sense to try to avoid — because of healthy market fundamentals.

The common refrain from the bears that the stock market’s gains are too concentrated has not held up lately. Technology stocks showed signs of fatigue in March, while cyclical value stocks that benefit from the improved economy picked up the slack. This rotation helped the energy, financials, and industrials sectors outperform in March while the average stock beat the index.

Turning to bonds, yields remain attractive following the latest rise in rates. A gradually slowing economy and easing inflation should limit additional selling pressure in the bond market, especially if the Fed cuts rates this summer as expected. Last week’s successful Treasury note auctions were encouraging. Corporate bond yield spreads, which tend to sniff out trouble before stocks, are about as calm as they get compared to Treasuries.

Solid fundamentals and history suggest investors stay the course, though a small allocation shift may make sense for those overdue for a rebalance or with long investing time horizons. Risks seem manageable at this time, though we continue to watch inflation, rates, and geopolitics closely.

As always, please reach out to me with questions.

Sincerely, 

 
Scott Krase

Previous Commentary:

• March 2024 Market Commentary
• February 2024 Market Commentary
• January 2024 Market Commentary
• December 2023 Market Commentary
• November 2023 Market Commentary
• October 2023 Market Commentary
• September 2023 Market Commentary
• August 2023 Market Commentary
• July 2023 Market Commentary
• June 2023 Market Commentary
• May 2023 Market Commentary
• April 2023 Market Commentary
• March 2023 Market Commentary
• February 2023 Market Commentary
• January 2023 Market Commentary
• December 2022 Market Commentary
• November 2022 Market Commentary
• October 2022 Market Commentary
• September 2022 Market Commentary
• August 2022 Market Commentary
• July 2022 Market Commentary
• June 2022 Market Commentary
• May 2022 Market Commentary
• April 2022 Market Commentary
• March 2022 Market Commentary
• February 2022 Market Commentary