The stock market hit new all-time highs in 1Q24 on the back of robust economic strength and a strong consumer. Inflation and interest rates remain elevated which puts the pace of rate cuts in question, but amid this unique economic environment there are investment opportunities to capitalize on.
KEY POINTS
Remain invested, even as cracks emerge
- Oil prices jumped nearly 30% to a 12-month high in September ($90+/bbl) as OPEC extended production cuts despite strong demand.
- Equity market momentum paused as the S&P 500 fell over 3% amid concerns over higher rates and their impact on the economy.
- The Fed indicated it’s near the end of its rate hike cycle, but also made clear that even if activity weakens rates will stay high.
- Cracks in the economy are starting to form amid rising consumer (and business) borrowing costs. We continue to favor limiting credit risk in portfolios.
- Even with economic momentum softening we suggest investors remain fully invested with strategic risk taking.
Exhibit 1:
Key Markets Performance in 1Q24
In our 2024 outlook we discussed the resilience of the US economy, emphasizing that the strength of the US consumer would dictate how the economy performs in ‘24. During the first quarter of ’24 the economy and key themes from the end of last year remained largely unchanged. The US economy continued to expand, consumer sentiment and economic activity continued to remain robust, and the stock market continued to move higher. In our view these themes won’t reverse quickly and will have long-lasting impacts, which both the Federal Reserve and markets must navigate.
Exhibit 2:
Major Market Performance 2024YTD
That said, one topic did change – the expected pace of interest rate cuts. Most economists now expect only three rate cuts in ’24 (vs. expectations for six at the end of ’23). This change in expectations suggests that investors and the Fed believe the U.S. economy can handle higher interest rates. And recent economic data also supports this – home construction activity is the strongest since before 2008, consumer sentiment is at a 2.5-year high, and unemployment remains below 4%.
Exhibit 3:
Forecasted Interest Rate Cuts in 2024
Amid this unique economic environment our outlook for the remainder of ’24 is focused on taking advantage of the investing landscape around us. Within portfolios we suggest investors take capture high yields on traditional and securitized fixed income.
We see opportunities in equities, especially given the broadening of the rally at the end of 1Q (in March over 60% of S&P 500 constituents moved higher). And within alternatives we are becoming more constructive on Real Estate. For long-term investors this is an opportunity to capitalize on market themes and strategically deploy new capital.
ENDNOTES
Disclosures
This commentary reflects the personal opinions, viewpoints and analyses of the author providing such comments, and should not be regarded as a description of advisory services provided by Defiant Capital Group or performance returns of any Defiant Capital Group client. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Defiant Capital Group manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
A word on risk
All investments carry a certain degree of risk, including possible loss of principal, and there is no assurance that an investment will provide positive performance over any period of time. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Non-U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. This report should not be regarded by the recipients as a substitute for the exercise of their own judgment. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
