As we head into April, the markets and economy are showing mixed results for the first quarter of 2024. March saw most financial markets up in the low single digits, but fixed income lagged due to rising interest rates. The U.S. and developed nation stock markets performed well, setting new price records on the back of continued economic and earnings growth. Both growth and inflation continue in the broader economy, with no signs of an imminent recession in the data.
Despite strong job growth, positive income and spending, and continued business investment in the first quarter, there have been some signs of slowing in consumer and business confidence. However, the economy has continued to strengthen overall. Inflation remains a concern, as both headline and core inflation are above the Federal Reserve’s target levels. While the Fed has not yet declared victory over inflation, market expectations on rate hikes are aligning with the Fed’s projections, which should help limit future volatility.
Beyond interest rates, other risks to watch include the impact of the war in the Middle East on supply chains, which may be contributing to rising inflation. The pending election adds uncertainty, and unforeseen events like the collapse of the Key Bridge in Baltimore can also disrupt supply chains. Despite these risks, the U.S. economy is growing, particularly in terms of jobs, and corporate earnings are exceeding expectations. Markets have adjusted their inflation and rate cut expectations, reducing a significant source of uncertainty.
Looking ahead, the momentum from a strong 2023 is expected to continue into 2024. The foundation for markets remains solid, with corporate earnings projected to keep growing. Despite the various risks at play, the U.S. economy is in a good place as we move further into the year. Markets have adjusted to ongoing inflation challenges, and the alignment of rate hike expectations with the Fed’s forecasts should help stabilize volatility. Overall, after a strong first quarter, the outlook for the economy and markets remains positive.