APRIL 2024 MARKET INSIGHTS

Every month, John Hoag of our client service team, harangues me until I complete Market Insights. Mercifully, I remembered and told John I would write it today, April 2^nd, and hopefully it will not only be fast, but useful and interesting as well. Let us review last month and then we can focus on the pivot points that we are evaluating for the near term.

In March, the S&P 500 returned 3.2%^[1], with dividends reinvested in the index, and is up about 10.5%^[2] for the first quarter of the year. For the month, the Russell 1000 Growth Index returned 1.8%^[3] and the Russell 1000 Value Index returned 5.0%^[4]. With higher interest rates weighing down on growth companies, value stocks had a strong showing during the month. However, when we look at the year-to-date returns, the Russell 1000 Growth Index returned 11.4%^[5] versus 9.0%^[6] for the Russell 1000 Value Index. Technology started 2024 leading the market as it did in 2023.

The Bloomberg Aggregate Bond Index returned 0.9%^[7] for the month of March and -0.8%^[8] for the first quarter of 2024. The 10-year Treasury ended the month at 4.20%^[9], slightly lower than the 4.25%^[10] level at the end of February. Overall, the 10-year was up 32 basis points from the end of 2023, and this is the driver behind the negative return for the first quarter.

Domestically, we have two tugs-of-war occurring. The first is the Presidential election, and the Democrats continue to coalesce behind Joe Biden. Although, conspiracy theorists have posited that we could see a contested convention and a new candidate emerge. It appears that Trump will be the nominee for the Republicans and there has not been any chatter about a contested Republican convention. We continue to have the noise around RFK Jr.’s candidacy and many strategists believe that RFK Jr. will siphon more votes from Biden than he will from Trump, and his very presence in the election could hand the Presidency to Trump. Finally, the No Labels party has been unable to generate a lead candidate and the death of Joe Lieberman is a major loss for this coalition. You may remember that Joe Lieberman was a long-time Connecticut politician who rose to become a Senator and ultimately ran for re-election as an independent. During that run, I was at a local restaurant with several colleagues. Always sporting my Knights of Columbus lapel pin, Senator Lieberman took note as he stopped at our table to glad-hand and exclaimed “I love the Knights of Columbus!” I always admired his steadfast faith, his straight shooter persona, and his deep loyalty to our home state. His death seems to have taken the zest out of the No Labels party, and when Chris Christie declined to be their candidate, they may now simply be running out of time for this election.

There is not tremendous support for this election, and it seems that almost everyone would prefer a different slate. Democrats charge that Trump is a complete risk to Democracy while Republicans point to our porous borders, the out-of-control budget spending, and the apparent decline in Biden’s cognitive abilities as reasons he should not be reelected. Trump continues to be mired in any number of lawsuits which is clearly a distraction, and we will see if it weighs on his candidacy. The budget submitted by Biden has a built-in budget deficit of $2 trillion, and with the 10-year Treasury trading at 4.35%^[11] and the 2-year trading at 4.70%^[12], the Government needs to get spending under control1.

The rate environment is obviously tied to inflation. The Fed has been a “little” all over the place on this issue. When inflation had a near-term peak in June 2022, it appeared the Fed was resolved to avoid 1970’s-style inflation and got to work hiking rates. We generally believed that the Fed was focused on solving the inflation issue at the risk of a recession and rising unemployment. Last week, the Fed indicated inflation was low enough that they wanted to keep an eye on the employment market, and the most recent pronouncement from Chairman Powell was that the Fed may not need to be too quick to pull the trigger on cutting the Fed Funds Rate. Hmm! These positions are contradictory and cause an issue for Fed credibility. As a result, interest rates have backed up to nearly 4.4%.^[13]

Inflation continues to be a concern and that narrative is underscored by oil trading at over $84 per barrel^[14], up from $72 per barrel at the end of the year^[15]. Gold is trading at $2,281 per ounce^[16], up from $2,111 at the end of the year^[17]. Employment and wages both remain strong and the reality of all these factors illustrates that inflation is still with us. On our morning call today, we discussed the likelihood of an additional rate hike by the Fed. While we do not think it is likely, the longer the inflation flame remains hot, it is not inconceivable to think that the Fed will pivot to battle inflation. Ultimately, inflation is not only bad for the banks, but the higher level of interest rates is a negative factor for real estate and exacerbates the pressure on regional banks. There is more to come on this issue and something we are watching closely.

There are numerous things to be concerned about. The Presidential election will ebb and flow as we move through the summer and could add to volatility. We remain concerned about the debt and deficits and what it means for the long-term health of our economy. Lastly, inflation continues to be a headwind and the Fed will need to conclude whether inflation or employment is their primary focus over the short term. Plenty of worry to go around!

Until next month.