Q1’24: More to Come for Stocks?

After a solid stock market recovery in 2023 – the S&P 500 up 24%, Nasdaq up +43%^I, –many market observers, including this one, expected a pullback in early January to consolidate gains and reset expectations.

But that never happened: investors poured some $50b into US stock funds as the S&P 500 made 22 new highs for a 10% gain in the first quarter with nary a pullback. The Nasdaq was up 9.3% and the Dow 5.5%.^II

Investors celebrated the end of interest rate hikes, taking Fed Chief Powell at his word, and came into this year expecting at least six rate cuts to follow. Since then, economic data has shown a stronger economy than expected – the Atlanta Fed is currently estimating 2.5% GDP growth for Q1^III — so that rate cuts, typically done to stimulate an ailing economy, will likely be fewer and later. Right now, a maximum of three rate cuts is expected, with only a 50/50 chance of a rate cut in June.

Inflation dropped significantly from 6.6% at year-end 2022 to 3.1% at the end of ’23,,sup>IV and nonfarm payroll data reported in early April supported the continuing decline-in-inflation narrative with much higher jobs growth than expected and wages and prices up less than projected.^V A soft landing is still the consensus: strong economic growth with full employment and ongoing consumer spending as inflation continues to decline.

However, the consumer is fraying a bit on the edges: while there are still more job openings than workers looking — at 1.36^VI — and wages are still increasing with savings remaining higher than pre-pandemic^VII, credit card debt is climbing as are auto loan delinquencies, and retailers report fewer big-ticket sales and a consumer looking to trade down.

Interest rate sensitive areas continue under pressure – think housing and commercial real estate loans – nearly $1T in loans roll over this year, 25% of the total outstanding, all financed at much lower rates.^VIII

This means that we will continue to closely monitor economic data for signs that could change our bullish thesis.

For now, we remain constructive on the stock market though a pause of some sort would not be unexpected to consolidate gains. But we think there is more to come given the broadening out in stock sectors making new highs, the expansion in company earnings power as consumers continue to spend, and the opening of the IPO, and mergers and acquisitions markets which reflect managements’ confidence in a steadier more predictable future.

There is also, by the way, a lot of historical data being commented upon by various strategists about what happens after five up months in the market (which we just had) and/or a first quarter up +10%: they all show that most of the time, the stock market goes even higher in subsequent months.^IX

Continued fiscal spending – funding from the infrastructure bill, the chips act and the inflation reduction act (energy transition) should continue to support economic growth and jobs, while the Ai revolution we read about every day is real and lasting, and still in the early days. The adoption of Ai across industries will impact productivity in a profound way – it is growth without inflation — but it is hard to measure and predict just now.

Wild cards are the continuing climb in oil prices – as demand picks up and unexpected supply issues emerge – while continuing tensions in the Middle East and Ukraine, along with the uncertainty of some 50 elections being held worldwide, not least our own, keep us on high alert for what that means for the economy, the consumer and ultimately, the stock market and our own stocks.

Yours truly appears on CNBC weekly to talk about stocks and the stock market, as well as on other news outlets, and we post frequently on Twitter, LinkedIn and our BD8Cap Facebook page if you want to follow our market commentary. Our website also has updates and information about the firm.

As always, we at BD8 Capital Partners continue to focus on your long-term financial future and planning needs, while managing your investments to help meet your financial goals.

Please never hesitate to contact us with any questions or concerns at any time.

Best,
Barb

Barbara Doran
CEO CIO
BD8 Capital Partners LLC
Cell: 917-733-7644
bdoran@bd8cap.com

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