Insights: April 2024

Insights: April 2024 Edition

Hello all-

I hope this message finds you all enjoying a lovely spring! Personally, my ski season was cut short by injuries, so I am praying for snow and looking forward to the ski season opening again in December! I know, shut up, right! Enough of that, most of you probably yearn for warm weather, green grasses, and the promise of a beautiful summer.

On to finance. With the S&P 500 up 10% in the first quarter – hopes are up but will this continue? Analysts see quite a bit of churn occurring and the second quarter has seen a pull back. Yes, there are global tensions, but the same reoccurring problematic theme is inflation. Investors are hoping for rate cuts, but March CPI came in at 3.5% year over year, with core inflation (without food and energy) up 3.8%, and super core (without food, energy, and housing) up 4.8%. Many are hoping for cuts beginning in June/July – place your bets!

There are two paths for the Fed:

1) Keep rates higher for longer which will pain commercial real estate borrowers and regional bank underwriters as well as those reliant on credit cards, small businesses needing to borrow, and home buyers.

2) Cut rates preemptively which decreases the Fed’s credibility – it wants the 2% target inflation number. It could be said that this would artificially keep stock valuations higher and volatility lower.

Economic growth targets have been revised for 2024 from 1.9% to 2.3% and for 2025 from 1.4% to 2.1%.

At a macro level, there continue to be issues top of mind that will be influenced by the outcome of the election – agnostic but real in financial terms.

1) The deficit – COVID brought record levels of spending that largely led to inflation, what is to come as we go forward?

2) Immigration – the balance of increasing economic growth while straining federal and local infrastructure. Approximately 3.3 million will immigrate to the US in 2024.

3) The Fed – Jay Powell’s term expires in January of 2026. The Fed Chair is a presidential nomination and Senate confirmation, viewed as a quasi-government entity. The next Chair will depend on who is in office which will dictate policy direction going forward.

In short, with all of this at play, it is a time for rebalancing and active management. While technology has led some great gains, it is stepping back as energy and communications hold strong. Consider that energy, communications, technology, and consumer discretionary sectors have largely been dominated by the top two names in the sector, not the sectors as a whole. Gains are relative for this reason.

Clients, you will continue to see rebalancing and active management as we go through this time period, especially in an election year that will heat up. Volatility is expected thus the need to move swiftly when necessary. Please do reach out if you have any questions.

Have a lovely spring!

Leise

President, Lion’s Eye Wealth