While we had a false start to spring here in the Northeast, the bull market of 2023 continues its charge into 2024. On Thursday, March 22, all three major U.S. stock indices (Dow, S&P 500, and Nasdaq) were at record closing highs. The Dow ended that day closing in on the 40,000-mark, up over 5% year-to-date. The S&P 500 and Nasdaq are each up over 10% to start the year. Due to the excitement over artificial intelligence, the markets, much like 2023, continue to be led largely by the technology and communication services sectors. However, we have seen signs of a broadening out of the participation into other economic sectors.
Fueled by strong fourth quarter 2023 corporate earnings, and with over 80% of reporting companies beating estimates, investor sentiment remains high for 2024. Analysts are expecting earnings to continue to improve throughout the first half of 2024. Close attention will be paid to the first quarter 2024 earnings, as investors look for signs that underlying fundamentals remain supportive of future earnings projections. Improving fundamentals outside the technology and communication services sectors could bode well for overall market strength as investors may ultimately decide to pare gains from those sectors in favor of others.
The Federal Reserve (Fed) held interest rates unchanged at its March meeting and continued to indicate that three rate cuts were likely during 2024. Having seen inflation decrease significantly, the Fed has held interest rates steady since its last increase in July 2023. Inflation peaked in June 2022 at 9.1%, compared to 3.2% for the 12 months ending February 2024. The Fed’s target inflation rate remains 2%. While investors may have to wait longer than initially anticipated for these rate cuts, the Fed will likely lower rates before seeing inflation reach its target.
A recession has been avoided thus far, despite most presuming one would be certain when the Fed began raising interest rates in March 2022. A strong labor market and a resilient consumer continue to keep the economy stronger than anticipated. The U.S. economy grew at 3.2% during the fourth quarter of 2023 and 2.5% for all of 2023, compared to 1.9% in 2022. Lower inflation along with lower borrowing costs could provide a needed boost to the U.S. economy during 2024 and into 2025 as the Fed is forecasting modest economic growth of 1.4% and 1.8%, respectively.
While corporate earnings and the overall strength of the economy continue to be the primary focus of investors (as they should be) other outside risks remain. President Biden recently signed legislation funding the government through September, thus avoiding a government shutdown. While a short shutdown may not have a significant impact on the economy, one of longer duration most certainly would. Several shutdowns have been avoided in this session alone, further highlighting the divide in government as we head into what looks to be another contentious presidential election. More to come on that, as September and November are not far off. Geopolitical risks also remain, such as the Israel-Hamas conflict, the Russia-Ukraine war and the ever-present tension between the U.S. and China.
Just as this recent storm delivered upward of a foot of snow for many of us here in the Northeast, we are reminded that uncertainty and surprises are always around the corner. The economy of the United States and its stock markets are not immune to this uncertainty, or the occasional surprise. Having a well-balanced investment portfolio that can hold up to the challenges it will inevitably face is key to achieving long-term financial success.
As always, your relationship team is here to meet with you in whichever way is most comfortable for you. We value your relationship and the confidence you have placed in Adirondack Wealth Management by choosing us as your financial partner.
Sincerely,