Market Update: First Half of 2024

Stock Market

The stock market had a robust start to 2024. Here are the key highlights:

• S&P 500: Up over 15%.
• Nasdaq 100: Increased by 18.5%.

The S&P 500 hit its first all-time high in two years in January and continued to perform well throughout the first half of the year. Major developments influencing the stock market included:

• Strong Corporate Earnings: Many companies reported better-than-expected earnings, boosting investor confidence. They also expected stronger earnings going forward to enhance expectations.

• Tech Sector Growth: The technology sector, particularly AI and semiconductor companies, saw significant gains. The euphoria over the use of AI, Artificial Intelligence, raised the price of major chip makers which have a large influence on the price of the major indices.

• Federal Reserve Policies: The Fed’s decision to maintain interest rates provided a stable environment for growth. At the beginning of 2024, the market participants had priced in up to 6 25 basis point rate cuts with expectations that the funds rate would lower to almost 4%.

Bond Market

The bond market also experienced notable movements:

• Moderation in Inflation: Inflation rates began to moderate, which positively impacted bond yields.
• Rate-Cut Expectations: There were growing expectations for rate cuts, which supported bond prices. While the initial euphoria of rate cuts diminished as the year progressed, there are still participants pricing in 3 to 4 25 bp cuts by the end of the year, with 4 more expected into 2025.
• Resilient Economic Growth: The U.S. economy showed resilience, further bolstering confidence in the bond market.

Short-term maturities offered historically attractive yields, making them a popular choice among investors. There is an estimated $6 trillion of cash sitting in Money Market accounts collecting nearly 5% yield.

All is not rosy, however. There are still underlying currents that could harm further gains.

• The commercial real estate market is still on shaky grounds. With the influx of Work from Home employees, companies no longer need the space they used before the pandemic.  It is estimated that 30-40% of office space is under-utilized.  The pricing of these properties has fallen substantially.  A number of smaller regional banks are holding these as collateral against the loans they expended and could suffer substantial losses.
• Inflation, while falling, is still elevated. Commodity prices have fallen but it is not reflected in the price consumers pay at the store.  Housing prices have not fallen and the barrier to ownership is still large.  The supply of housing is not increasing because a majority of homeowners are locked into mortgages at levels equal to or below 4% and don’t want to replace their residence with a 6.5% mortgage.
• Consumer confidence has dipped. During the pandemic, there were almost 2 jobs available for every unemployed person.  The latest figures show slightly over 1 job for every unemployed.  The unemployment rate has risen to above 4%.  People are worried about inflation, their jobs, and the economy after the election.
• Hanging over all this is the election in November. There are 2 separate and distinct agendas on the ballot that will affect the course of the country of the coming decade.

Summary

Overall, both the stock and bond markets performed well in the first half of 2024, driven by strong corporate earnings, tech sector growth, and stable Federal Reserve policies. However, heading into the back half of the year, there is concern over consumer confidence, economic growth and the outcome of the elections, not just at the Presidential level, but also on control of the Senate and House of Representatives.  There have already been periods of elevated volatility in the markets, with more expected.  With the Presidential election looming in November, there is uncertainty over how the Federal Reserve will move with its interest rate cuts.  An initial cut of 50 bps could be interpreted as being political.  The more prudent move, would be an initial 25bp cut in September with indications that the cuts will be more aggressive following the elections.  I expect that this will be evidenced in the dot plots that the Federal Reserve will release at the September meeting.

 

The opinions expressed herein are those of Riverbend Planning Group. The data and opinions are furnished for informational purposes only and should not be considered a solicitation for an investment decision. Although it is derived from sources believed to be accurate, Riverbend Planning Group makes no guarantee to the accuracy of the information

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