As we head into April, how do things look for the markets and economy? Let’s explore the big picture, including the recent data, potential risks on the horizon, and what it could all mean going forward.
Mixed Market Results for Q1 2024
March was a good month for financial markets, with most up in the low single digits. But as a whole, the first quarter was a bit more mixed. On one hand, the U.S. and developed nation stock markets did very well, setting several new price records on continued economic and earnings growth. On the other hand, fixed income lagged as interest rates rose during the quarter. These mixed results reflected the broader economy, where both growth and inflation continue.
No Signs of Recession Here
Let’s start with growth. So far this year, job growth has remained quite strong. Both income and spending have remained positive, as has business investment. Recently, there have been some signs of slowing, with both consumer and business confidence pulling back a bit. Overall for the first quarter, however, the economy continued to go from strength to strength—and there are simply no signs of imminent recession in the data.
Still No Victory Over Inflation
That healthy growth, though, also kept inflation up. We are not seeing the continued decline that has been hoped for. Both headline and core inflation remain well above the Federal Reserve’s target levels, and the improvement looks to have essentially stopped. This means the Fed can’t declare victory over inflation. But there is some good news on this front. Markets have largely adjusted to this, and market expectations on rate hikes are now much closer to what the Fed itself says. That alignment should help limit future volatility.
Other Risks Beyond Rates
Of course, rates aren’t the only concern. Other things we need to watch include the effects of the war in the Middle East on supply chains, which may be pushing inflation back up. There is also the pending election, which will increase uncertainty across the board. And then there are all the things we don’t even see yet. An example of this is the collapse of the Key Bridge in Baltimore, which will also hit supply chains. There are real risks out there.
Will the Momentum Continue?
Despite all that, we are still in a good place as we look ahead. The U.S. economy is growing, especially on the jobs front, and the foundation for markets is solid. Corporate earnings came in better than expected last quarter and should keep growing. Markets have adjusted their inflation and rate cut expectations, removing one significant source of uncertainty. And, as we have seen so far, after a very strong year like 2023, the momentum tends to continue. On the whole, then, after a strong first quarter, we are still in a good place as we move further into the year. And I expect that to continue.