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In the first three months of 2024, the U.S. economy remained resilient despite short-term interest rates sitting near 20-year highs. Noteworthy in the quarter was the continuing robustness in the labor market, stronger-than-anticipated corporate earnings, and a convergence of market participants’ aggressive forecast of rate cuts with the Fed’s own projections. Retail sales pulled back, but the trend remains positive.

These factors provided a supportive backdrop for stocks. The S&P 500 Index continued to reach new highs throughout the quarter, gaining 10.6% in the three-month period. Large-cap U.S. stocks (S&P 500 Index) outperformed small-cap U.S. stocks (Russell 2000 Index), and growth stocks (Russell 1000 Growth) again beat value stocks (Russell 1000 Value).

Developed International and emerging-market stocks also posted gains but did not keep pace with the U.S. market. Developed International stocks (MSCI EAFE) gained 5.8%, while emerging-market stocks (MSCI EM Index) posted a 2.4% return.

Bond returns were mixed as the benchmark 10-year Treasury yield rose from 3.88% to 4.20%, with market expectations for rate cuts tempered in terms of timing and magnitude.  In this rising-yield environment, the more interest-rate sensitive Bloomberg U.S. Aggregate Bond Index declined 0.8%. Credit performed relatively well in the quarter, as high-yield bonds (ICE BofA High Yield Index) were up nearly 1.5%.

As the narrative around peak rates was reinforced throughout the month, growth stocks added to their enormous year-to-date lead over value stocks. The Russell 1000 Value Index posted a more than respectable gain of 7.5% but was not a match for its growth counterparts’ return of 10.9%. So far this year, large cap growth stocks are outperforming large cap value stocks by a colossal 31 percentage points! 2023 has been the second-best year for growth stocks relative to value stocks since the first full calendar year of the Russell 1000 style indexes in 1979.


The U.S. economy has continued to prove resilient despite the Fed maintaining a higher level of interest rates for longer than most expected. A main driver of this better-than-expected economic growth has been the continued strength of the U.S. consumer. The combination of robust job gains and steady real income growth has allowed consumers to continue spending despite higher rates. The strong consumer has also benefited corporate earnings. And after a decade of near-zero interest rates, companies are generally well positioned financially with balance sheets that are healthier than they have been in past tightening cycles.

Inflation (CPI) has declined meaningfully over the past year, falling from 6% to just over 3%, though still above the Fed’s long-term target of 2%. Our expectation is that inflation will continue to trend lower over time, due in large part to shelter costs, which we expect to moderate.

With the steady decline in inflation, we believe Fed policy has crept into borderline restrictive territory. Simply put—to the extent that inflation continues to fall, and the Fed keeps rates unchanged, monetary policy will become proportionately more restrictive, and could reach a level that significantly slows the economy.

Economic growth in and of itself does not cause inflation, and ongoing modest economic growth is not a reason for the Fed to avoid cutting rates. At the beginning of the year, the market was anticipating six to seven rate cuts But as of the end of March, the consensus is for three rate cuts bringing the top end of the Fed Funds range to 4.75% at the end of 2024.

For now, U.S. economic data seems supportive of growth, not contraction. If the Fed is able to engineer a ‘soft landing’ of the U.S. economy with inflation converging to 2% and growth continuing, they can incrementally lower rates and ensure that policy does not become too restrictive. If a recession does occur later this year, the Fed will have the ability to swiftly and meaningfully cut rates given current levels.

Fixed-income portfolio positioning has not changed much since year-end. We believe that inflation is under control for now, and that short-term interest rates have peaked and will likely decline slightly over the course of the year. For corporate bonds, we do not foresee a near-term risk of a spike in default rates given the still-attractive corporate fundamentals.


The U.S. economy currently appears to be in in decent shape. The stock market continues to hit new highs as economic growth continues. There continues to be a high level of concentration in the “Magnificent Seven” stocks, which comprise about a quarter of the value of the S&P 500. We feel it is important to note the remaining 493 stocks in the S&P 500 are not currently experiencing stretched valuations. The possibility of a recession isn’t off the table, but if it does happen the timing is likely pushed back until late this year or 2025.

As we look ahead, we anticipate there will be pockets of choppiness given headline risks related to Fed policy, geopolitical events such as the ongoing wars in Europe and the Middle East, and the upcoming U.S. presidential election (election years have historically been more volatile for the equity markets). In anticipation, we are prepared to be opportunistic and take advantage of any attractive risk/reward opportunities that arise.