Dow Jones Industrial Average^®: 39,807.37 | 5.6%
S&P 500^® Index: 5,254.35 | 10.2%
NASDAQ Composite^® Index: 16,379.46 | 9.1%
Russell 2000^® Index: 2,124.55 | 4.8%
FTSE 100^® Index: 7,952.62 | 2.8%
STOXX 600^® Index: 512.67 | 7.0%
NIKKEI 225^® Index: 40,369.44 | 20.6%
 

Best-performing S&P 500 sectors in Q1

Communication Services: 15.6%
Energy: 12.7%
Info. Technology: 12.5%

Weakest-performing S&P 500 sectors in Q1

Real Estate: -1.4%
Utilities: 3.6%
Consumer Discretionary: 4.8%

Past performance is no guarantee of future results. Indices are unmanaged, have no identifiable objectives and cannot be purchased. Performance of indices do not reflect the deduction of any fees and charges. 

Quarterly Market Headlines

• Equities continued their winning ways during the first quarter as most earnings reports from large companies beat expectations and economic data remained robust despite the Fed’s maintaining its restrictive monetary policy stance. Solid U.S. equity market returns were broad-based as the tech and growth rally that fueled 2023’s gains expanded to other parts of the market. The S&P 500 gained more than 10% and the tech-heavy NASDAQ Composite advanced 9.1% during the quarter, while the small-cap Russell 2000 Index rose nearly 5% and the Russell 1000 Value Index gained more than 8%.
• Ten of 11 S&P 500 sectors posted quarterly gains, with communication services, energy, technology, financials, and industrials all notching double-digit returns. By contrast, the real estate sector slid 1.4%, reflecting disappointing earnings reports amid persistently high interest rates.
• International indices posted gains, with London’s FTSE 100 Index up 2.8% and the European Stoxx 600 Index up 7.0%. But the big international mover was Japan’s Nikkei 225 Index, which gained 20.6% and achieved a new record high for the first time in 34 years. Many analysts attribute a portion of the Nikkei’s impressive return to greater focus on maximizing shareholder value among Japanese firms as well as to a 7% drop in the yen during the quarter (making exports more competitive in world markets).
• U.S. Treasury yields rose across virtually all maturities reflecting, among other factors, the Fed’s cautious approach to normalizing (i.e., lowering) interest rates, a slight uptick in inflation figures, and stronger-than-expected economic data. 

Federal Reserve

• The Fed left its federal funds policy range unchanged at 5.25%-5.50% at both the January and March meetings. At his press conference following the March meeting, Fed Chair Jay Powell re-iterated, “We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year.”
• Released on March 20, the latest Summary of Economic Projections (SEP) revealed that Fed policymakers on average expect the policy rate at the end of 2024 to be 75 basis points (0.75 percentage points) lower than the current range. Market expectations are in line with the SEP, anticipating three rate cuts of 25 basis points each (totaling 75 basis points) by year end, though Wall Street commentary continues to intimate the possibility of fewer than three (or even no) rate cuts in 2024 if progress toward the Fed’s 2% inflation target stalls. Chair Powell regularly cautions that data in each SEP reflect participants’ views at the time of an SEP’s publication and are neither predictions nor definitive plans from the Fed upon which investors should rely.

Inflation, Labor, and Economic Conditions

• Inflation is well below the highs of 2022, but remains stubbornly above the Fed’s 2% annual target. The most recent consumer price index (CPI) pegged the annual rate at 3.5% while the personal consumption expenditures (PCE) price index registered 2.5%. The core measures of CPI and PCE, which strip out food and energy, clocked in at 3.8% and 2.8%, respectively. Monthly price increases were higher in the first quarter of 2024 than in the last quarter of 2023, reflecting to some extent seasonal fluctuations, though services inflation remains sticky, particularly in areas such as housing and insurance. The persistence of above-target inflation has caused markets to push back expectations of when the Federal Reserve will begin cutting interest rates, with the latest consensus pointing to an initial rate reduction in the third quarter.
• Adding upward pressure to inflation, the WTI benchmark oil price climbed 15% from around $72/barrel at the end of 2023 to just above $83/barrel at the end of the quarter. Conflict in the Middle East and attacks on commercial ships in the Red Sea have raised the risk of disruptions in oil supply to world markets. Signs of potential growth in China’s economy and production cuts pledged by certain OPEC members have also added upward pressure to global oil prices.
• Labor conditions remained robust in the first quarter, as the U.S. economy added more than 800,000 jobs, exceeding job gains in the prior two quarters (though monthly figures may be revised up or down in future reports). The unemployment rate remained just under 4%, near historic lows. Job openings and quit levels also remained steady. Growth in average hourly earnings, which can factor into inflation, ticked up at the start of the year before decelerating. Continued strength in the labor market and overall economy has influenced the Federal Reserve’s posture of maintaining interest rates in restrictive territory to continue pressing inflation down toward its 2% target.
• Fourth-quarter real (annualized) GDP was revised upward from 3.2% to 3.4%, with the full-year 2023 figure clocking in at a robust 3.1%. Support for the GDP figures was broad-based, and included ongoing strength in consumer spending, capital expenditures, government outlays, and housing construction. Growth in the first quarter of 2024 is expected to have remained above 2%, with the first official figures due in late April.
• The tragic collapse of the Francis Scott Key Bridge in Baltimore, Maryland, following a shipping accident could affect certain sectors of the U.S. economy, as the Port of Baltimore handles the most vehicle imports of any U.S. port and is the second-largest port for U.S. coal exports. However, analysts have suggested that the accident should not be impactful to the U.S. economy as a whole.
• In March, Congress passed and President Biden signed all the necessary appropriations bills to fund federal agencies through the end of the 2024 fiscal year (September 30, 2024). While near-term concerns about a government shutdown have been averted, the often-contentious budgetary process for fiscal 2025 is expected to begin in the coming months.

Final thoughts for investors 

Hopes abound for a vaunted “soft landing” for the U.S. economy. Ongoing economic data reports have reassured many investors that the economy can withstand interest rates that are “higher for longer” as the Fed continues its inflation fight. Equity market gains, largely driven by tech and growth stocks in 2023, broadened somewhat in the first quarter, while yields on U.S. government debt continue to offer investors positive real returns. Yet the future remains uncertain, particularly with global geopolitical risks elevated and a U.S. presidential election potentially complicating policy decisions in Washington. Investors will also be looking to see whether upcoming corporate earnings reports justify current equity valuations. As always, stay focused on long-term goals and speak with a financial professional about navigating the terrain ahead. 

_{This commentary is being provided for general informational purposes only. The information does not represent investment advice or a recommendation and/or solicitation of any financial transaction.}

_{This material is general in nature, was developed for educational use only, and is not intended to provide financial, legal, fiduciary, accounting or tax advice, nor is it intended to make any recommendations. Applicable laws and regulations are complex and subject to change. Please consult with your financial professional regarding your situation. For legal, accounting or tax advice consult the appropriate professional.}

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