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Market Commentary

Market Commentary: Navigating Current Uncertainties with an Eye on the Horizon 

Happy Spring! As we step into a new season, the financial landscape continues to evolve, presenting both challenges and opportunities. The first quarter of 2024 has been dynamic, reflecting the intricate dance of interest rate expectations and investor sentiment. Let's delve into the key themes that are shaping our current market environment.

  1. Inflation: After a period of consistent decline, the headline Consumer Price Index (CPI) has shown signs of stabilization, remaining relatively flat since mid-2023. This pause is primarily driven by persistently high shelter costs, which increased nearly 6% as reported in February. However, real-time data suggests a different story, with rent prices showing a year-over-year decrease of 1%. This lag in reflection within official statistics suggests that we may see further easing of CPI figures as market adjustments filter through the data pipeline. While the path may be uneven, the trend points towards a gradual decline in inflationary pressures.
  2. The Federal Reserve's Balancing Act: Currently, the U.S. economy is experiencing what many would describe as a "Goldilocks scenario" - not too hot, not too cold, but delicately poised. The Federal Reserve faces a critical decision: maintain higher rates to temper demand or cut rates to spur growth. The risk of tipping the economy into recession by keeping rates high ("too cold") contrasts sharply with the risk of reigniting inflation by cutting rates prematurely ("too hot"). The Fed's approach is expected to be highly data-driven, aiming to maintain economic equilibrium without triggering extreme fluctuations.
  3. Election Year Uncertainties: Market Behavior during Election years traditionally injects a measure of uncertainty into markets, which can lead to short-term volatility. Despite this, historical data from 1928 through 2023 shows that election years often yield strong market returns, with the S&P 500 posting positive gains in 83% of presidential election years. Although the first five months typically see lower returns and heightened volatility, markets generally recover post-election as uncertainties dissipate. Long-term investors should remember that the impact of political parties on market returns is minimal when viewed over a decade-long horizon.


Bottom Line: Strength often begets Strength

The S&P 500's robust gain of 10.2% in Q1 2024 is a positive signal, echoing historical patterns where strong first-quarter performances typically lead to continued gains throughout the year.

Following gains of 10% or more in the first quarter of a year, the S&P 500 index was higher over the next three quarters 10 out of 11 times with an average additional gain of 6.5%. 1

Beyond immediate market fluctuations, however, several transformative trends are shaping the future landscape. Innovation isn’t just a buzzword- it’s the lifeblood of investment success. It fuels growth, drives competitiveness, and shapes the future of companies. Everyone is talking about artificial intelligence (AI)- and the early stock market winners in the field of AI have been concentrated in the tech industry. However, the potential of AI extends far beyond tech giants and chatbots (like ChatGPT). Artificial Intelligence, particularly in robotics, stands out as a significant driver of future economic and market changes with implications for various sectors including manufacturing, healthcare, and more. Companies at the forefront of deploying advanced robotics to enhance client experiences, efficiency, and profitability are poised for growth, reflecting the broader impact of innovation on economic productivity, not just the “Magnificent 7”.

As always, our strategy remains focused on being patient and worrying less about tracking short-term market fluctuations. We continue to monitor the evolving economic indicators and market trends, ensuring our strategies align with both current conditions, future opportunities, and most importantly your objectives and goals.

Thank you for your continued trust and partnership. We are here to support you through these times of change and look forward to helping you achieve your financial goals. Let's keep our eyes on the future and not get swayed by the noise of the present.

1 Source: Morningstar, Lincoln Financial Group. 1950-2023. S&P 500 Price Return Index (does not include dividends). 2024 not included in average returns. Past performance does not guarantee future results.