The beginning of the year was successful for the stock exchange.
The S&P 500 Index, one of the most closely followed stock indexes in the world, rose greater than 10 percent in the first three months of 2024, reaching 22 record highs.
About 40 percent of the index’s stocks are trading above their levels from 12 months ago. Even if the index did lose value, it wasn’t by much – just three days to this point in 2024 during which the S&P 500 has fallen greater than 1 percent.
The reason for this move was the renewed appetite for shares. According to EPFR Global data, in March investors paid roughly USD 50 billion to funds purchasing shares in the United States.
A modest gain in January, based on expectations that the Federal Reserve would begin cutting rates of interest this year, gave solution to broader optimism that the central bank could bring inflation to its 2 percent goal without doing an excessive amount of damage to the economy – a long-awaited “soft landing.” .
The latest reading on inflation and spending released Friday was consistent with economists’ expectations, reinforcing prevailing forecasts of changes in Fed rates of interest. “We don’t need to rush into cuts,” Fed Chairman Jerome H. Powell said at an event on Friday.
In markets, enthusiasm has spread to riskier corners of the economic system. Bitcoin’s value continues to exceed $70,000, a threshold it reached for the first time this month after regulators made it easier for bizarre investors to purchase funds that track the cryptocurrency’s price. At the same time, mergers and acquisitions have surged, with the public debuts of Reddit and Trump Media seeing big share price gains on their first day of trading. And in credit markets, where investors finance corporations through bonds and loans, demand for and willingness to lend has increased, an indication of optimism about the prospects for corporate America.
Even with the Fed considering cutting rates of interest as many as 3 times this year, by as much as three-quarters of a percentage point in total, the returns offered to investors remain significantly higher than those achieved elsewhere in the world, helping to maintain money flowing into the United States.
“I’m seeing this around the world,” said Andrew Brenner, director of international fixed income at National Alliance Securities.
But Mr. Brenner also sees reason for caution. Cracks are appearing in the economy and consumer funds are beginning to weaken. Credit card debt is rising, and the number of people delinquent on automobile loans has skyrocketed the fastest pace in over a decade. According to S&P Global, some corporations are also beginning to struggle – the number of defaulters greater than doubled last year.
The Russell 2000 index of smaller corporations, a measure of corporations which are more at risk of swings in the domestic economy, also rose in the first three months of the year, but only by 4.3%. This reminds us that the largest corporations drive stock market quotations – especially those which are riding the wave of optimism towards artificial intelligence.
“Shares are now serving people,” Brenner said. “I just wonder how long it will be before we get into trouble.”
The so-called Magnificent Seven that propelled the market higher last year continued to wield outsized influence, accounting for nearly 40 percent of the S&P 500’s gain in the first three months, in keeping with data from S&P’s Howard Silverblatt.
But sharp declines for Apple and Tesla meant an excellent smaller group of corporations – Nvidia, Meta, Amazon and Microsoft – took the market to latest heights. They alone were liable for half of the index’s growth.
“Wages are good, interest rates are at an all-time high, employment remains strong and consumers are eager to spend their paychecks,” Silverblatt said. “So the market continues to grow.”
