The market continues to push higher, taking the 2023 Santa Rally to the next level. The FED has continued to keep rates unchanged, while at the same time speaking of “future cuts.” Those illusive rate cuts continue to tantalize the U.S. equity markets. Just as the Wicked Queen looked into the mirror seeking positive affirmation, so too is the market looking into the future asking for clarity on the FED dot plots, the presidential election summer season, and that never ending sticky inflation.
TheDHTInvestment Committee is currently committed to our U.S. equity position and our decision to remain fully invested. We also remain confident in our decision to extend duration in our fixed income positions during Q4. That proactive trade has positioned our bond holdings to benefit from any cuts in 2024 - we estimate the first cut to occur in late summer. The number of cuts remains a major point of debate, however the FED has provided a dot plot map that shows cuts starting in 2024 and continuing through 2026.
Our U.S. equity position will continue to be overweight large cap growth and technology. The S&P 500 has muscled through 22 record highs just in the first quarter of 2024, delivering 10.2% quarter-to-date on the index itself.[1]
“The S&P 500 has had 11 years since 1950 in which the S&P 500 has gained more than 10% during the first quarter (not counting 2024).”[2]“Stocks gained 21.4% on average during those 10 calendar years…”[3]
[1]FCMS Market Note – Big Number Q1 2024
[2]FCMS Market Note – Big Number Q1 2024
[3]FCMS Market Note – Big Number Q1 2024
We have seen new highs in many indexes and continue to maximize our cash positions with money markets that are still benefiting from the higher interest rate market that has not been able to fully retreat due to sticky inflation. CPI came in hotter than expectations at 3.5% on the year-over-year. We also continue to see the cost of fuel rise since December 2023 and the 10-Year-Treasury holding around 4.5%.
Inflation and fuel costs have stayed elevated, but a major part of the market strength is the overall strength of the economy. GDP expanded at 3.4% in 2023.[1]Expectations for 2024 are lower, but we continue to see positive expansion, and labor strength continues to boost the market. The economy remains expansionary with over 8.8 million job openings, 3.8% unemployment rate and hourly wages posted a 4.1% year-over-year increase.[2]
Commentary is mixed regarding the types of jobs being filled vs. the overall health of the long term economy. The Committee continues to focus on the unemployment number as well as the jobs opening figure, which we reviewed in our last letter. That number remains stable and for as long as it stays elevated above the number of people seeking jobs, the economy will remain labor starved.
The next major debate - ahead of the official debates - is what will this presidential election bring to the market? This topic has become intermingled with geopolitical risks in both Ukraine and Israel. Those conflicts have not shaken market confidence. They have also not helped inflation pressure in oil market. The Investment Committee continues to assess potential market impacts and we are ready (as we noted in our last letter) to hedge and dial back equity positions if needed.
We continue to deploy assets in a systematic dollar cost average fashion to help moderate the impacts of short run volatility. And, as we meet for Annual Planning Reviews, we are actively conversing about income planning and gain harvesting for those who are in retirement or approaching retirement within the next 12 to 18 months. We also continue to seek positive returns on cash savings, utilizing the higher interest rates market for as long as it lasts. Please engage us during reviews to ensure that we are maximizing cash savings through bank CD offerings and money market options.
Finally, a word about what we hope to see in the next quarter. We are again actively assessing the fixed income market and our bond positions to ensure that we are positioned to benefit from rate reductions once the tide shifts on rates and inflation. We also remain committed to deploying capital within U.S. markets and growth positions, and continue to hold an overweight within the tech sector. Technology remains an inflation fighting sector because as the cost of inputs continues to rise, technology like AI continues to seek greater efficiency long term. Ultimately, we are committed to your long term goals and always focused on ensuring we keep your Personal Comprehensive plans up to date.
[2]Sage Economics 4-5-2024 A (Nearly) Perfect Jobs Report
John C. Donohue, III CFP®
Gregory B. Hart
Michael J. Thomson Sr.MBA, CLU, ChFC, RHU, REBC
Brooks D. Shertzer
Securities offered through Founders Financial Securities LLC
Member FINRA/SIPC and Registered Investment Advisor