It was a strong start to the year for the stock market.
The S&P 500, one of the world’s most watched stock indexes, rose more than 10% in the first three months of 2024, boosted by 22 record highs.
About 40 percent of the index’s stocks are trading above where they were 12 months ago. And even when the index has lost ground, it hasn’t lost much, with just three days so far in 2024 in which the S&P 500 has fallen more than 1 percent to the close.
The move is due to renewed appetite for stocks. Investors in March poured about $50 billion into funds buying stocks in the United States, according to data from EPFR Global.
A modest rally in January, on expectations that the Federal Reserve would begin cutting interest rates this year, gave way to broader optimism that the central bank could reduce inflation to its 2% target without causing great damage to the economy. coveted “soft landing”.
Such exuberance has spread to the most dangerous corners of financial markets. Bitcoin continues to trade above $70,000, a mark reached for the first time this month after regulators made it easier for ordinary investors to buy funds that track the cryptocurrency’s price. At the same time, mergers and acquisitions have increased. And in the credit markets, where investors finance companies through bonds and loans, demand for and willingness to borrow have swelled — a sign of optimism about the outlook for corporate America.
Even as the Fed considers cutting interest rates as many as three times this year, by as much as three-quarters of a percentage point, the yields on offer to investors remain far higher than elsewhere around the world, helping to keep money flowing in the United States.
“I’m seeing it from around the world,” said Andrew Brenner, head of international fixed income at National Alliance Securities.
But Mr. Brenner also sees reasons for caution. Cracks are appearing in the economy, with consumer finances starting to dwindle. Credit card debt is rising and the number of people falling behind on their car loans has risen at the fastest rate in over a decade. Some companies are also starting to struggle, with their debt more than doubling last year, according to S&P Global.
The Russell 2000 index of smaller companies, a gauge of companies most sensitive to the ebb and flow of the domestic economy, also rose in the first three months of the year, but by just 4.3 percent. It’s a reminder that the biggest companies are driving the stock market higher — especially those riding the wave of AI optimism.
“Equities are working for people right now,” Mr. Brenner said. “I just wonder how long until we run into a problem.”
The so-called Magnificent Seven group of stocks that drove the market higher last year continued to have a big impact, responsible for nearly 40% of the S&P 500’s rise in the first three months, according to data from S&P’s Howard Silverblatt.
However, sharp declines for Apple and Tesla meant that an even smaller group of companies – Nvidia, Meta, Amazon and Microsoft – pushed the market to new heights. They were responsible for half of the index’s gain on their own.
“Earnings are good, interest rates are off-peak and employment remains high, with consumers willing to spend their paychecks,” Mr. Silverblatt said. “So the market keeps going up.”
