David Vomund – First Quarter Review

Submitted and Written by David Vomund, Investment Advisor

One of the most common (and safest) predictions analysts make is that the market will be volatile.  A Google search shows how popular that prediction was heading into this year.  But those analysts couldn’t have been more wrong.  The S&P 500 rose 10 percent in the first quarter without even a two percent pullback.  In fact, the market went five months without a two percent pullback!  In the last 30 years that has only happened three times (1995, 2006, and 2017).

History says the rally isn’t over.  Since 1950, when the S&P 500 gained 8 percent or more in the first quarter it had an average gain of 9.7 percent over the next three quarters.  I’ll take that.  

Investors of all stripes (including me) bemoaned the narrow nature of the market advance in 2023.  It was focused on seven big-cap stocks called the Magnificent Seven.  That ended.  More stocks participated in the first quarter advance (the average S&P 500 stock gained 7 percent) and a few of the Magnificent Seven weren’t so magnificent. Tesla became the worst performing S&P 500 stock in the first quarter and Apple lost 11 percent.  While growth outperformed value in the first quarter, that gap is narrowing.  Over the last month large and mid-cap value indexes have performed better than the tech-heavy Nasdaq 100.  

On the income side, economists still expect a cut in June.  If true money-market funds will continue to yield more than five percent.  That’s okay, but investors happy to earn five percent are taking duration risk, which is why I still recommend nailing down yields on bonds that mature further out.  Others must agree as the bonds and preferreds in our portfolios have rallied even though the 10-year U.S. Treasury yield has moved from 3.86 percent to 4.4 percent this year.  

Bottom line:   Allow for volatile days as the market is buffeted primarily by the changing outlook for inflation, interest rates, and the war in the Middle East.  And expect surprises, both positive and negative.  My base case is for modest earnings growth and declining interest rates with inflation staying down in the 2.5 to 3.0 percent range.  That will be above the Fed’s 2 percent target, which it will raise to 2.5 percent or higher and say that’s close enough. What I have described is a favorable environment for stocks in a bull market.  And that is what we will have.

David Vomund is an Incline Village-based Independent Investment Advisor.  Information is found at www.VomundInvestments.com or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.