Let’s start with this perspective: It’s unrealistic to expect continual 10% quarterly gains in the stock market, especially if we don’t anticipate a 40% increase in stock values in the near future. However, we can certainly appreciate the strong returns of the past quarter.

Stocks

The S&P 500 index, a benchmark for large company stocks, rose by 10.16% in the year’s first quarter. The Russell Midcap Index saw a more modest gain of 4.68% over the same period, while smaller companies, as represented by the Russell 2000 Small-Cap Index, posted a 5.18% increase in the first three months of 2024.

In foreign markets, gains were more tempered. The EAFE index, tracking developed foreign economies, rose by 4.15% during the quarter. Emerging market stocks, measured by the EAFE EM index, showed a modest 1.69% gain in dollar terms year-to-date.

Bonds

The bond market was relatively stable compared to the stock market’s activity. Yields on 10-year Treasury bonds decreased slightly from 4.76% to 4.32% since the beginning of the year. Conversely, yields on 30-year government bonds increased from 4.03% to 4.46% in the first quarter. Notably, the yield curve remains inverted, with shorter-term Treasury yields higher than longer-term yields (e.g., 12-month Treasuries at 5.07% and 6-month bonds at 5.34%).

Market Conditions

Although frequent market highs can raise caution, a positive economic outlook exists. U.S. interest rates are at a 25-year peak, with the Fed Funds rate at 5.25-5.55%, but recent Federal Reserve statements have indicated a potential decrease rather than increase this year. Inflation, slightly above the Fed’s target at 3.2%, has been stable. Unemployment is at 3.9%, considered near full employment, with strong job growth (275,000 new jobs last month). GDP grew at a robust 3.4% rate last quarter, surpassing expectations.

However, there’s a cautionary note about the exuberance of short-term investors and their impact on market volatility. Some insiders are labeling this bull market as driven by enthusiasm for AI’s economic impact, which may not align with current realities. Concerns also arise about sustaining consumer spending growth amid rising aggregate debt levels.

Takeaway

After a robust start to the year, long-term investors may need to prepare for potential market turbulence. Investing can be likened to a roller coaster ride—bumpy but ultimately heading higher. Unlike amusement park rides that return to the start, markets typically trend upward despite short-term fluctuations.


Rich Feight, CFP
Rich Feight, CFP

Hi, I'm Rich Feight I'm a fee-only Certified Financial Planner, successful business owner, and self-made millionaire that knows how to beat the system and become wealthy. I have a lot of clients that have done it too. I'm also pretty good at finding that ever-elusive work/life balance so many of us strive for. Lucky for you I have an abundant mindset and give all my knowledge away on my blog. So if you want to know what it takes to become a millionaire, follow me.