The Three Largest Trends of 2024’s 1st Quarter
When following markets, every data point or price action can feel like the most important one. When you are paying attention every day it is easy to track new information, but it can be harder to see the patterns that are forming over time. Here are the larger trends we saw when zooming out from the first quarter of the year.
The post-pandemic inflation surge is over
Investors have received 65 new inflation data points for the United States alone this year—about one per business day. The single most important one is the PCE Deflator, which is the Federal Reserve’s preferred measure of broad consumer prices. While inflation is still ~50 basis points higher than the Fed’s target, it has normalized, and that should allow the Fed to lower interest rates a few times this year.
Growth is accelerating
Last year, the U.S. economy outperformed economist expectations and most other regions around the world. This year, there are signs that U.S. growth is still strong, with job growth above expectations so far this year, purchasing manager surveys suggesting that manufacturing activity seems to be expanding for the first time since 2022. In addition, consumer sentiment is at its highest level since the reopening from the COVID pandemic in the summer of 2021.
Capital markets are thawing
Investment-grade corporations issued $530 billion in new debt in the United States during Q1 of this year, a record for first quarters. At the same time, all-in borrowing costs stayed relatively flat despite higher sovereign yields, given robust investor demand. The fact that debt markets are coming back online suggests companies and investors are both acclimating to this higher-rate environment. For example, U.S. residential housing inventory for sale has been expanding for 20 weeks in a row. And in the residential housing market specifically, more available supply should mean more transactions, while also keeping prices in check.
Investment implications: Embrace the rally
The backdrop for investment portfolios is constructive. The precedents for equity performance during rate-cutting cycles outside of recessions are clear: On average, the S&P 500 has rallied in excess of 30%. We expect diversified investment portfolios to continue to perform well this year, but it likely won’t be without some turbulence along the way. While elevated valuations may give some investors pause, we would note that we expect performance to broaden to areas where valuations are less elevated, including U.S. small- and mid-cap stocks.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: J.P. Morgan Private Bank, April 5, 2024. “Zooming out to see the 3 largest trends of Q1” By Jacob Manoukian, U.S. Head of Investment Strategy, and Alan Wynne, Global Investment Strategist, J.P. Morgan Private Bank.
