Market Update Spring 2024: Stocks Continue to MARCH Forward

The stock market continued its upward trend into 2024, with smaller company stocks (small caps) leading the way in March. Despite this positive performance, it’s important to remember that markets are cyclical, and pullbacks can be expected during the year.

Current Market Trends and Challenges

While the US stock market has rebounded strongly since October 2022, positive sentiment now appears stretched and valuations could be considered high. So far, the growth in returns has been due to investors willing to pay more for stocks, but there are worries about whether companies can keep increasing their profits as expected. This is because the costs of making products are going up, and consumer demand may begin finally slowing. Stock selection will become more important in this environment.

At AFT, we consider investing with managers and funds that screen for certain characteristics of profitable companies in this economic environment.

Interest Rates and Inflation

The Federal Reserve is currently leaning towards only three rate cuts this year. Higher for longer interest rates could add pressure to borrowers, especially small and medium-sized businesses. Inflation is no longer falling at the previous pace, with services inflation remaining high.

Outlook and Considerations

As the economy continues to run in a late cycle market environment – the time typically preceding a recession – there are conflicting signals. While American shoppers are still spending confidently, there are concerns about how recent actions by the Federal Reserve will play out. Tight monetary policy – characterized by high interest rates and reduced money supply – will impact various sectors of the economy differently. It’s crucial for investors to anticipate potential volatility, and individuals should ensure they have savings for unexpected expenses or income loss.

While the first quarter of 2024 showed positive market performance, there are challenges ahead. Valuations are high, growth is slowing, and potential interest rate cuts are on the horizon. It’s a reminder for investors to always stay vigilant, diversify their portfolios, and seek professional advice when needed.

The views expressed are as of April 2024 and are based on current economic conditions, which are subject to change. Statements of future expectations and other forward-looking statements that are based on current market and economic conditions and assumptions involve uncertainties that could cause actual results, performance, or events to substantially differ. 

The material discussed is meant to provide general information and should not be construed as specific investment advice. Keep in mind that current and historical facts may not be indicative of future results. All investing involves risk, including the potential for loss of principal.