Market Update 4.10.24
Our Investment PerspectiveStocks continued to climb in the first quarter of 2024. The S&P 500 Index (weighted by company size) returned 10.6%, and its equal-weighted version gained 7.9%. The U.S. stock market outperformed most of the world, with only Japan turning in a slightly stronger result. Bonds fell slightly in the quarter, with the Bloomberg Aggregate Bond Index returning -0.8%.
Inflation remains a focal point for investors. Many are taken aback by reports declaring inflation defeated juxtaposed with their personal experience. We suspect that you may feel the same. The answer lies in the two charts below. In the first chart you can see that reported inflation (red line) looks moderate compared to the cost increases on critical items (blue line) such as food, energy, and shelter. Prices on discretionary items (green line), which include new cars, vacations, and luxury products, have increased less than average. 
In the following chart, Redfin illustrates the sharp jump in household income required to buy a home:
The Federal Reserve seems encouraged by the inflation data they have seen so far, but there are still upward pressures. Energy and commodity prices are climbing, shipping costs are increasing, and the U.S. Treasury continues to push liquidity into the market. Investors waiting for the Fed to cut rates have had to tone down expectations…the cuts may be fewer and later this year than hoped. So far stocks have held up well despite these concerns thanks to resilient corporate earnings.
We remain fully invested and well-diversified, and are happy to report another strong quarter. That said, we recognize that a 5-10% correction is a normal, healthy, and routine market occurrence that could happen at any time. Uncertainty regarding inflation, the election, corporate profits, etc. can lead to volatile periods. We do not try to time these events, but instead take advantage of the opportunity to add to our quality holdings. We expect performance to broaden to areas where valuations are less elevated than the “Magnificent 7”. Bottom line, the economy and corporate earnings will remain the most important drivers of the stock market.