It has been a spectacular start to the year for the stock market.
The S&P 500, one of the world's most followed stock indexes, is up more than 10 percent through the first three months of 2024, boosted by 22 all-time highs.
About 40 percent of the stocks in the index are trading above where they were 12 months ago. And even when the index has lost ground, it hasn't been by much, with only three days so far in 2024 in which the S&P 500 has fallen more than 1 percent at the close.
The move has been driven by renewed appetite for stocks. In March, investors poured roughly $50 billion into funds that buy stocks in the United States, according to data from EPFR Global.
A modest rebound in January, based on expectations that the Federal Reserve would begin cutting interest rates this year, has given way to broader optimism that the central bank could reduce inflation to its 2 percent target without inflict too much damage on the economy. long-awaited “soft landing”.
A new reading on inflation and spending released Friday was in line with economists' expectations, reinforcing prevailing forecasts for the Fed's rate moves. “We don't need to be in a rush to cut,” said Jerome H. Powell, chairman of the Federal Reserve, at an event on Friday.
In the markets, exuberance has spread to the riskiest corners of the financial system. Bitcoin continues to trade above $70,000, a threshold it reached for the first time this month after regulators made it easier for ordinary investors to purchase funds that track the price of the cryptocurrency. At the same time, mergers and acquisitions have increased, and the public debuts of Reddit and Trump Media were met with big spikes in share price on their first day of trading. And in credit markets, where investors finance companies through bonds and loans, demand for loans and the desire to lend have increased, a sign of optimism about the outlook for American businesses.
Even as the Federal Reserve plans to cut interest rates up to three times this year, up to three-quarters of a percentage point in total, the yields on offer to investors remain far higher than those found in other parts of the world, which which helps keep money flowing. to the United States.
“I'm seeing it from all over the world,” said Andrew Brenner, head of international fixed income at National Alliance Securities.
But Brenner also sees reasons to be cautious. Cracks are emerging in the economy and consumers' finances are beginning to weaken. Credit card debt has been on the rise and the number of people behind on their auto loans has increased at a dizzying rate. the fastest pace in more than a decade. Some companies are also starting to struggle: The number of defaulters on their debts more than doubled last year, according to S&P Global.
The Russell 2000 index of smaller companies, a measure of companies most susceptible to the ups and downs of the national economy, also rose during the first three months of the year, but only 4.3 percent. It's a reminder that the biggest companies are driving the stock market, especially those riding the wave of optimism about artificial intelligence.
“Stocks are working for people right now,” Brenner said. “I'm just wondering how long until we have any problems.”
The so-called Magnificent Seven group of stocks that drove the market higher last year continued to have a huge impact, responsible for nearly 40 percent of the S&P 500's gain during the first three months, according to data from S&P's Howard Silverblatt.
However, the sharp declines of Apple and Tesla meant that an even smaller group of companies (Nvidia, Meta, Amazon and Microsoft) drove the market to new heights. They alone were responsible for half of the index's gain.
“Earnings are good, interest rates are off their peak and employment remains high, and consumers are willing to spend their paychecks,” Silverblatt said. “So the market continues to go up.”
