And the beat goes on: First quarter 2024
BY CARTER E. ANTHONY, CFA
In what began as an uprising among tech stocks, more specifically those with Artificial Intelligence exposure, in the first quarter of 2023 continued throughout the year and on through the first quarter of 2024.
The expected rise and fall of the Magnificent Seven tech stocks did not occur and actually turned into a tsunami lifting all boats.
It spread broadly across the stock market with the S & P 500 rising 10.6%, the Dow Jones Industrial Average increasing 6.14% and the tech-heavy Nasdaq up 9.32%. The S&P’s increasing more than the Nasdaq is a perfect indicator of the broadening.
For the past 12 months, the S&P 500 has risen 29.9%. For the past 10 years, the S&P 500’s return has averaged 13.0%. Will it return to its mean? For years, the average Price/Earnings ratio on the S&P 500 has ranged in the 16x-17x. At the end of the first quarter, the P/E of the
S&P 500 was 21x-22x. Will the current market P/E return to its mean?
Headwinds to the stock market in all of 2023 and continuing into 2024 include the huge amount of government deficit financing. Total debt of the U. S. stands at $33 trillion with $23 trillion being issued last year to cover re-financings.
This debt issuance competes with other investments including corporate debt and equities called “crowding out” and usually results in higher interest rates and a lower stock market. “Usually” does not always happen.
With high rates and empty office buildings, commercial real estate may be a ticking time bomb.
Corporate earnings, the best indicator of the future market are expected to slow. The NFIB Small Business Optimism Index fell to its lowest reading since December, 2012, marking its 27th month below the 50-year average of 98.
Inflation is the primary problem, followed closely by inability to fill jobs and to afford short-term financing. California has to be the “poster child” for this low reading.
On the flip side, the University of Michigan’s Index of Consumer Sentiment has ticked upward to 76.9 for February; its second highest reading since a 50.0 was recorded in June, 2022. Consumer spending has increased but credit card debt has kept up with it commensurately.
Geopolitical factors could be little worse. There are two critical wars going on with both involving the United States. In the Ukraine/Russia war which could have nuclear possibilities, we are offering little leadership but rolls of taxpayer dollars.
In the Israeli/Hamas war, we have not been asked for assistance but we are trying to intercede against one of our staunchest allies. The Washington lunacy continues.
In President Biden’s SOTU campaign speech, he stated that his administration has created 15 million jobs, more than all the previous presidents combined in the history of the world or some such nonsense.
Almost immediately, the Bureau of Labor Statistics filed a report saying that 10 million of those jobs were simply employees returning to jobs vacated by the government mandate.
The BLS report credited President Biden with creating five million new jobs, not the 15 million that he claimed. Perhaps there is one apolitical agency.
Lately, there has been a lot aglitter about gold. Gold’s return during the first quarter was 13.24%, a better return than all three of the major stock indexes.
Gold’s return for 10-years ending December 31, 2023, was 4.57%. For the same 10-year period, U. S. stocks returned 12.75%. A pile of $20 gold pieces is a lot prettier than a stack of stock certificates but not nearly as profitable.
