A Good Year In a Few Months: The U.S. Stock Market's Remarkable Rally

by Joe Herrle, CFA
Vice President
Alternative Assets

During the decade I spent in San Francisco, I had the pleasure of working with a great economist and investor from 2015 to 2019. Those years proved formative for my investing career, and I learned much from my time there. Recently, I have been reminded of an adage of his. After a short period of strong performance, he would exclaim, “We had a good year this month!”, meaning the portfolio returned what we considered a good year's worth of returns in a fraction of the time. Given the robust performance of the stock market over the last several months, I have been reminded of this saying more than a few times.  

As the end of the first quarter approaches, the U.S. stock market has capped off a phenomenal beginning, exceeding expectations and marking one of the best performances on record for the opening three months of any year. The benchmark S&P 500 is poised to close the quarter with a gain exceeding 10%, building on the momentum that began in late 2023. This strong start to the year is relatively rare, with only nine first quarters since 1970 showing better performance. 

This follows a stellar fourth quarter of 2023, where the index climbed over 11%, fueled largely by the dominance of mega-cap technology companies such as Apple and Microsoft. This time, however, the rally boasts a broader base, with strong performance evident across a wider swathe of sectors. We would consider this a healthy bull market, where strong performance is not concentrated in just a few names. The diversification suggests that investors are confident about the fundamentals of a broader range of companies, not just the tech behemoths that previously led the charge. 

So, what's driving this exceptional first quarter? Several factors are at play. Expectations for interest rate cuts have spurred investor confidence, while better-than-expected corporate earnings have shown that companies are adept at managing rising costs and navigating the economic landscape. Additionally, the persistent strength of the job market and consumer spending have provided solid support to the market’s upward trajectory. 

Many investors and experts have been surprised by the first-quarter surge. The average strategist was forecasting an S&P 500 gain of less than 2% for the entirety of 2024. With the S&P 500 up nearly 10% in 2024, it already exceeds every year-end forecast but one. The consensus among forecasters now points towards a cautiously optimistic outlook for the rest of 2024. They predict continued market growth, albeit slower than the first quarter's exceptional surge.

Looking ahead, forecasters are cautiously optimistic. The consensus is that the Federal Reserve’s policies will continue to support economic growth, with expectations of interest rate cuts later in the year. The GDP growth rate is projected to slow down before reaccelerating towards the end of the year, and inflation is expected to stabilize closer to the Fed’s 2% target. 

The U.S. stock market’s first quarter of 2024 has set a high bar for the rest of the year. Indeed, we have had a good year this quarter! While uncertainties remain, the current rally's broad-based nature and positive economic indicators paint a promising picture for investors.  

Takeaways for the Week

  • Investors eagerly await tomorrow's issuance of February’s Core Personal Consumption Expenditures (PCE), the Fed’s preferred measure of inflation. Also noteworthy, Fed Chair Jerome Powell is set to issue his statements later in the morning. 

Disclosures