We are 3/4th of the way through 2024, and despite many things being thrown at it this year, the stock market has continued to trend higher. An old Wall Street saying that stocks climb a wall of worry definitely applies to 2024 so far. We’ve had a strange (putting it lightly) election season, higher interest rates for 2024 than expected, geopolitical tensions across the globe, and a weakening job market, just to name a few.
Since my last newsletter, the market has seen quite the roundtrip in price and volatility. A drop of about 8% in the S&P 500 over a 3-day period at the beginning of August sent volatility readings spiking. Since then, though, the market has erased that decline and is now nearing its highs from mid-July. Volatility is now back near levels it was prior to the drop.
As we roll into the summer months of 2024, we are starting to see some evidence of a slowdown in the economy. One of the most important areas to monitor is consumer spending, as it accounts for almost 70% of GDP (Gross Domestic Product). Through the first half of this year, consumer numbers have weakened and some retailers are warning about a slowdown in spending. So far, the stock market has not been fazed by this, in hopes that a slowdown leads to lower inflation and lower interest rates from the Federal Reserve soon.
So far 2024 has seen consistent higher than expected inflation numbers in several different readings. As mentioned in the newsletter at the end of 2023, the expectation was for the Federal Reserve to be cutting interest rates throughout this year as inflation continued to cool off towards the Fed’s preferred 2% target.
The market has started 2024 off continuing the trend that ended 2023. Historically, having a positive January and February portends having a positive calendar year.
As we wrap up 2023, the Federal Reserve gave the markets an early Christmas present. During their December meeting they signaled an expectation of 3 interest rate cuts coming in 2024. Both the stock market and bond market exploded higher on this news in what investors view as a welcome relief from high interest rates.