The stock market has kicked off the year with remarkable vigor. During the first quarter of 2024, the S&P 500, a globally monitored stock index, surged by over 10%, hitting 22 record highs.
Nearly 40% of the index’s components are now trading higher than they were a year ago. In March alone, investors funneled around $50 billion into U.S. stock-focused funds, according to EPFR Global data.
Initially sparked by expectations of interest rate cuts by the Federal Reserve in 2024, the market sentiment has evolved into broader optimism.
There’s growing confidence that the Fed can rein in inflation to its 2% target without significantly harming the economy – a scenario long envisioned as a “soft landing.”
This enthusiasm has also spilled over into riskier market segments. Bitcoin, for instance, continues to trade above $70,000, a milestone achieved this month after regulatory changes eased access for retail investors.
Mergers and acquisitions have surged, and credit markets indicate heightened optimism toward the corporate sector.
Despite the Fed considering interest rate cuts potentially three times this year by as much as 0.75%, returns in the U.S. market still outshine those elsewhere globally, attracting continued investment.
Andrew Brenner, head of international fixed income at National Alliance Securities, observes this trend globally but also advises caution.
Although the Russell 2000 index, which tracks smaller domestic firms, also saw growth in the first quarter (albeit at 4.3%), it underscores that the market’s upward momentum is largely fueled by major corporations, especially those embracing artificial intelligence.
Yet, there’s a note of caution in this fervor. The dominance of a few key stocks, known as the “Magnificent Seven,” continues, with an even smaller group led by Nvidia, Meta, Amazon, and Microsoft driving a significant portion of the S&P 500’s gains in the first quarter.
“Earnings are good, interest rates are off their peak, and employment remains high, with consumers willing to spend their paychecks,” says Howard Silverblatt of S&P. “So the market continues up.”
