Insights

In the first quarter of the year, U.S. equity markets were off to a robust start, marking the eighth time that the S&P 500 Index has posted consecutive double-digit quarterly gains since World War II. Strong corporate earnings and advancements in areas such as artificial intelligence, cloud computing, and digital transformation, helped propel stocks higher. Additionally, the S&P 500® Index rose 10.56% during the first three months of the year for its best first-quarter performance since 2019. We believe monetary policy and corporate earnings growth are poised to remain pivotal forces in shaping equity market performance in 2024. We share how we believe each of these dynamics will play a role in determining whether equity markets can achieve positive returns in the months ahead.

In the fourth quarter, financial markets staged an impressive rally due to the Federal Reserve setting expectations for aggressive rate cuts. The year ended strong for U.S. stocks thanks to “the Magnificent Seven” companies, collectively returning 76%. As we head into 2024, there are many crosscurrents that need to be watched as volatility is expected to pick up. Investors remain focused on whether the U.S. will avoid a recession, earnings for the S&P 500, and the presidential election.

In the third quarter, investors closely monitored economic data and Federal Reserve comments. While better-than-expected results reduced some recession concerns, there are worries about potential inflation and further rate hikes due to sustained U.S. growth. The surge in the budget deficit, fueled by increased government spending, supports short-term growth but poses challenges with rising interest rates, possibly requiring policy adjustments.

The first half of 2023 has brought some much-needed relief to investors, with equity markets posting positive returns despite inflation concerns and aggressive rate hikes by the Federal Reserve (the “Fed"). However, the fact that the Fed appears committed to keeping interest rates higher for longer raises concerns about the increasing likelihood of a future recession.

Despite the sudden failures of Silicon Valley Bank and Signature Bank of New York, the government's quick response boosted confidence in the banking system, resulting in modest gains for both stocks and bonds. However, the unintended consequences of the Fed Reserve's actions have posed challenges in controlling inflation without causing economic slowdown, with potential risks of recession, making their future actions critical for the economy and financial markets.

The key to successful investing is creating and adhering to a thoughtfully constructed long-term investment plan based on your financial position, risk tolerance and investment timeline. Extended bouts of volatility like we have experienced over the past nine months should not alter an established, diversified approach designed to meet your long-term investment goals.