Q1 2024 Market & Economic Update

Larry Qvistgaard | April 26, 2024

With the books closed for the first quarter, I wanted to take this opportunity to offer an update on key developments.

Soft, Hard, or No Landing?

Soft, hard, or no landing – the question remains whether the Federal Reserve will be able to pull off its inflation-fighting campaign without a recessionary impact. U.S. stock market bulls cheered the first quarter as investors gained more confidence in a “soft landing” (tamed inflation but no recession) amid inflation moderation. The prospect of perhaps “no landing” (no recession but persistent inflation) was also considered.

Inflation Mixed for Q1

Costs of goods and services are still rising annually, albeit at a slower pace than the peak of the recent inflation cycle. Metrics were mixed¹ in the first quarter, with consumer inflation picking up in January (December data), easing in February, and then rising in March. The last Consumer Price Index (CPI) release of the first quarter showed a 3.2%² rise year-over-year versus 3.1 % expected. Inflation is still running hotter than the Fed’s 2% target rate, but the market wants rate cuts.

Federal Reserve (Fed) Summary & Outlook

The first quarter featured two Fed meetings, with the Fed leaving rates unchanged in January and March. The result is the same current target overnight lending rate of 5.25 - 5.50%, a 23-year high. While the Fed left rates unchanged at the most recent March meeting, the Fed did let us know that three 25-basis-point cuts are expected by the Federal Open Market Committee in 2024 via its Summary of Economic Projections (SEP)³. Markets loved Federal Reserve Chair Jerome Powell's commentary at the post-meeting press conference, as all three major stock indices jumped to record high levels. However, on the last day of the quarter, Powell reiterated⁴ that the Fed needs to see more good inflation readings before it is ready to cut rates. At the end of the first quarter, markets were pricing a 95.8% probability of the Fed leaving rates unchanged at the May 1st Fed meeting and a 63.6%⁵ chance of a rate cut at the following meeting on June 12^th. One thing we know for sure is that those percentages will change each day.

What If the Fed Doesn’t Cut Rates?

Anything is possible. Market watchers were looking for six cuts; now, it has been whittled down to three for 2024. Yet, major U.S. stock indexes have risen while the number of cuts expected declined. Cutting rates with the economy running hot would defy conventional wisdom, and the “this time is different” narrative can be cause for concern for many veteran investors. It’s an election year, and the dynamics are multifaceted. We will see what future inflation and job data look like.

Long-Run Planning

If you asked someone well versed in finance three years ago, “What would the stock market do if interest rates went from less than 1% to over 5% in three years”? I believe, the overwhelming answer would have been for stock market declines during the rise in rates.

To go back further, if a time traveler told you in the 1990’s that the early 2000’s would be a crazy time in our world, you probably would have dismissed the remark. We’ve had interesting time periods before. But looking back almost 25 years, it has been just that, crazy!

Think for a moment about several issues we’ve been confronted with over that time. We had the dot-com bubble where people were selling their websites, run from their garages, for hundreds of millions, if not billions, of dollars. During that time, we also had an incredible attack on US soil with 9/11. Then we had the Great Recession in 2008-2009 brought on in part by “easy money”. I can remember receiving postcards in the mail promoting 125% loan to value home loans available! How can that ever work? Well, it didn’t. Then there was, and continues to be, the COVID-19 Pandemic. It is still vivid in my mind, traveling home from an international trip March 2020, not completely understanding the gravity of the situation. How is this even possible? And now, we’ve been witnessing a time where interest rates have gone from near 0% to over 5% in a matter of a year. While 5% doesn’t sound like a lot, if consumers and businesses based their budgets with the assumption that the near 0% interest would last forever, that sizable change in a short period of time can be a shock!

Crazy times indeed. Yet, the broad stock market has done quite well over that period of time. These markets tend to defy conventional wisdom time after time; this is why long-term investing is a lifelong commitment with the fruits of time bearing themselves as a result of investor discipline. So, what do we make of all this?

First, consider accessing your account information on a regular basis to get better acquainted with what you own. I know I send you quarterly reports like those attached. But now, through my website, www.smcwealthmanagement.com, I’ve added a special page where you are able to access three different websites to do the following:

Account Access – View the holdings in your account(s) and access monthly statements along with 1099s.
Performance Reporting – View portfolio performance based on a timeframe of your choosing.
Client Portal – Access your personal website for a complete view of your financial well-being.

Reach out to me if you have not already signed up for access to any of the three above or you signed up for access but cannot remember your login credentials.

During our regular meetings, I will provide you with information on accessing each. But also, don’t forget to ask me about each of the holdings in your account(s) and what they represent. Each has a purpose and I’d love to provide that information to you.

Second, as a standard practice, I continuously look for ways to improve the management of my practice and services offered to you. Based on the many and rapid changes, like those noted above, the global economy continues to trend toward a faster pace with more volatility than we are used to experiencing. In my opinion, this type of environment requires more agile investments that can be monitored more closely as the markets fluctuate.

Working within the core philosophy of how I’ve operated my practice over the years, my due diligence in finding a solution for the current and future market environments has led me to add to my line-up. Working with the industry leading asset management firm, AssetMark, I will now be offering institutional money managers!

For years, I’ve utilized the investment platform offered by the company handling the operational and compliance aspects of my practice, Cambridge Investment Research, to buy and sell mutual funds, exchange traded funds, stocks and bonds. While that won’t change, by adding the AssetMark platform, we will see benefits, such as:

Access to a carefully vetted menu of institutional money managers, who are active and flexible in how they manage assets. Institutional money managers are typically only available to large investors such as institutions, sovereign wealth funds and pension funds. Partnering with AssetMark, I can now provide access to these money managers for all of my clients, no matter your account size!

Through Assetmark, I also gain expert due diligence enabling me closer monitoring of your investments.In addition to my own research, I will also be able to call upon expert strategists who spend their days monitoring and reviewing investments and markets.

The ability to provide you greater tax efficiency with access to an array of tax sensitive options and management solutions to anticipate and minimize taxes.
Enhanced technology and transparency to give us greater insights into your portfolio that mutual funds or exchange traded funds do not currently provide.

While nothing needs to change in how I’ve been working with you, you may find the benefits of utilizing institutional money managers and the Assetmark platform quite compelling. I will be sharing more about how this new offering may benefit you on our next call or meeting. If you have any questions or would like to discuss in greater detail sooner, please let me know.

Finally, I am very accessible, only a phone call email or now a text (see the first page header for my texting number) away. I also have a calendaring system that allows you, in your time zone, to pick a day/time and type of meeting (voice or Zoom) that is convenient for you! Here is the link to that system:

You can also find it on my website on the menu at the top of the main page by selecting “Contact”. If you have questions or concerns, please do not ever hesitate to reach out to me. If it’s something simple, I may have my assistant handle it. For other matters, I may need to schedule a time to call you, but I want you to know that helping you is of the utmost importance to me.

As always, I find purpose, enjoy working with you, and truly appreciate your decision to work with me to reach your financial goals and plan for the future. As a valued and important client, I thank you for your trust and confidence in me.

To access last quarter’s Quarterly Market Insights video, click the QMI picture below:

All the best,

Larry Qvistgaard