Explore Q1's major market trends, delve into AI's influence on stock performance, and uncover potential energy crisis looming ahead. Get up-to-speed to navigate your investment journey.
The first quarter of 2024 started off like the 2023 ended, with the market going straight up. As reflected in the chart above, there were 22 all-time in the first quarter. The S&P 500, the benchmark for the market, was up 10.6% for the quarter, which most people would consider a great year! The Nasdaq was close behind at +9.3%, the Dow Jones Industrial Average was up 6.1% and the small caps, represented by the Russell 2000, was up 5.2%. In our last newsletter, we discussed how the market was led by the Magnificent 7, which is made of Meta, Nvidia, Amazon, Alphabet, Microsoft, Apple and Tesla. The collective group led the market again in the first quarter, but we began to see some cracks that are concerning. Tesla dropped almost 30% as EV sales slowed, Tesla was momentarily surpassed by Chinese EV maker BYD and cold weather created super charger station parking lots in cities like Chicago as freezing temps prevented batteries from charging and holding a charge. The darling of the markets, Apple, also dropped almost 11% for the quarter. The clear winner was Nvdia up 82.46% as Artificial Intelligence (AI) chips are the favorite investment theme amongst Wall Street.
Going forward, the markets will continue to focus on the Federal Reserve and when they begin cutting interest rates. The 10 Treasury finished the quarter at 4.19%. The unemployment rate was good, dropping slightly to 3.8% in March, which makes 26 consecutive months of unemployment under 4%. That is the longest stretch of unemployment under 4% since the 1960’s. We have also seen inflation ticking up slightly, still over 3%. The Federal Reserve has been very consistent in their messaging that they will not lower interest rates until inflation is at 2%. At the beginning of the year the Fed alluded to 3 rate cuts this year, the market wanted 5 or 6 but eventually lowered expectations to 3. Paragon believes that unless inflation slows, we will most likely see only 1 rate cut, and it is very possible that we do not see any this year. Very recently some Fed Governors are lowering expectations to 1 or 0 as well.
Lower interest rates make borrowing cheaper for corporate America, which often results in businesses increasing mergers, growth and eventually stock prices increasing. Lower interest rates also mean lower mortgage rates which would be a boost to the housing market. The housing inventory of used houses is at historic lows because people with mortgages locked in under 3% don’t want to move if a new mortgage will be considerably higher.
One reason Paragon thinks inflation could remain stubbornly high is supply chain issues. The loss of the Francis Scott Key Bridge in the Baltimore Port, a draught limiting fresh water in the Panama Canal and the Houthi rebels causing havoc in the Red Sea all contribute to increased costs in shipping and that flows through to the consumer.
Earlier in the newsletter we alluded to Nvdia and the growth of artificial intelligence (AI) and AI chips. The one thing we are not seeing discussed enough is the stress on the US energy grid. Demand for energy in the U.S. was flat for nearly a decade, but five things have caused a vertical spike in demand and our concern is whether the energy grid can handle the demand. Those five things are:
Another unforeseen side effect on the cut back in Electric Vehicles (as mentioned earlier with Tesla) has been the effect on Lithium. EVs are 70% of the demand for Lithium and we have gone from in demand to an over-supply.
Paragon has received many referrals for our expertise in Structured Products. The above chart was printed in the Wall Street Journal and shows growth of Structured Notes in the US over the last few years. We continue to believe that Structured Notes will only continue to gain in popularity as more investors realize the advantages these investments offer. We appreciate referrals and the confidence our clients have in sharing these investments with others.
Real estate commissions have been a topic of discussion after a class action lawsuit against the National Association of Realtors (NAR) has put commissions in the crosshairs. The only thing I want to stress here is that the settlement is still pending and terms are still being negotiated. Lots of speculation and rumors are floating around about the impact on consumers and agents, but at this point it is just speculation and I would encourage you to wait for the final outcome and guidance on the new rules. Craig Novorr is a licensed realtor in Kansas and Missouri and will be following the outcome, we will be able to provide guidance and advice once the new rules are announced.
As we have just finished Valentines Day and Easter in the first quarter, thought we would share this frightening chart for anyone with a sweet tooth. The dramatic price increase in Cocoa prices has been driven by extreme weather conditions in West Africa, crop disease and associated panic buying.
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