PFA Updates

Apr 24, 2024

Hello friends,

The markets and economy are off to a good start in 2024. As reported by Economist.com, "global stock markets recorded their best first quarter of the year since 2019. The MSCI World Index, which tracks 1,500 companies globally, gained almost 8% between January and March".[1] Your Investment Committee was happy to see the positive performance numbers on the PFA quarterly reports distributed to clients. Our Investment Models continue to track well with their comparative indexes, even though we hold more high yield money market than normal to reduce risk.  As reported last month, we are looking for opportunities to rebalance and/or increase risk as is appropriate, with the intent of being fully invested back into our target stock/bond allocations by midyear. We are not too concerned about the drop in the markets since the first of April. Negative surprises in economic data and geopolitical events can trigger volatility in the short term. Some economists are looking for a 3-5% pullback in the S&P 500 index in the second quarter before the market starts back on a growth trend. [2] In spite of ongoing challenges, the US economy continues to show resilience. Sometimes news that is "less bad" is a positive sign - "the rate of decline in earnings is less severe than three months ago. We consider this a great start to the earnings season.” [3] We remain hopeful for a solid 2024.

Positive Comments about the Economy and Markets

"But while inflation and rising prices are frustrating for consumers, they're also a sign of a strong economy. The data shows that the US economy is in great shape. Rising earnings and expectations drive stock prices higher - not interest rate cuts. So I'm still bullish on stocks for 2024" [4]

"At present, we are tracking Real GDP growth at about a 2% annual rate in the first quarter, which is close to the long-term average. At the same time unemployment remains below 4%" [5]

"US employers added 330,000 jobs in March, more than expected, and the unemployment rate fell. The job market has grown for 39 straight months" [6]

"In a market that has been driven significantly by momentum and speculation this year, investors still have an eye on what matters in the end - Earnings! We expect the market to continue to broaden as positive earnings drive stocks throughout the rest of the year" [7]

"Corporate earnings are expected to rise as well in 2024. Investment bank Goldman Sachs projects that S&P 500 companies' earnings will climb 8% this year with profit margins rising as well. The Atlanta Fed's GDPNow model forecast's 2.5% growth in the first quarter of 2024" [8]

"The market had a great start to 2024, and as history suggests, the year as a whole will end not with a whimper, but a bang. It's only the fourth time since the start of the millennium that the S&P 500 has gained more than 8% in the first three months of the year" [9]

Concerns we still have about the Economy and Markets

"Commodity prices have risen +12.32% so far in 2024. This could create a challenge for the Fed if it plans to cut interest rates. Despite persistent expectations of rate cuts within the next 6-9 months, they have yet to materialize. We have dubbed this the "interest rate cut mirage" [10]

"The S&P 500 is on track to close lower this week due in large part to rising geopolitical tensions and hawkish comments from Fed Governors regarding stubborn inflation and the possibility of fewer or no rate cuts this year” [11] 

"There are still embers of inflation here and there in the economy. For shoppers, that's painful because of higher prices at the store. For Wall Street, that's painful because it could convince the Fed to hold back on delivering the cuts to interest rates that traders are craving and have been betting on" [12]

Keep the faith friends. Let us know if you have any questions about your investments or financial plan. Be safe, stay healthy and Happy Spring!

Sincerely,

The PFA Investment Committee

[1] Economist.com

[2] Chaikin.com

[3] Earningsscout.com 

[4] Chaikin.com

[5] ftportfolios.com

[6] Economist.com

[7] ftportfolios.com

[8] Chaikin.com

[9] CNBC.com

[10] Earningsscout.com 

[11] Investech.com

[12] Vanguard.com