It was a great start to the year for the stock market.
The S&P 500, one of the world's most widely watched stock indexes, has risen more than 10 percent in the first three months of 2024, hitting 22 record highs.
About 40 percent of stocks in the index are trading higher than they were 12 months ago. Even if the index loses ground, it won't be much, with only three days so far in 2024 in which the S&P 500 has fallen more than 1 percent.
The move is driven by renewed appetite for stocks. Investors poured about $50 billion into equity-buying funds in the U.S. in March, according to data from EPFR Global.
A modest rally in January on expectations that the Federal Reserve will start cutting interest rates this year led to widespread confidence that the central bank could reduce inflation to its target of 2 percent without causing too much damage to the economy. For the long awaited “soft landing”.
Such enthusiasm has spread to riskier corners of financial markets. Bitcoin continues to trade above $70,000, a level it 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. In credit markets, where investors finance companies through bonds and loans, demand for borrowing and the desire to lend have surged — a sign of confidence in the outlook for corporate America.
Although the central bank is considering cutting interest rates three times this year, by a total of three-quarters of a percentage point, returns to investors remain higher than anywhere else in the world, helping to keep money flowing. within the United States.
“I see it from all over the world,” said Andrew Brenner, head of international fixed income at National Alliance Securities.
But Mr. Brenner also sees cause for alarm. Cracks are forming in the economy and consumer funds are beginning to dwindle. Credit card debt is on the rise, and the number of car loan defaults is on the rise The fastest pace in more than a decade. Some companies are also beginning to struggle, according to S&P Global.
The Russell 2000 index of small firms, a measure of companies most susceptible to the ebb and flow of the domestic economy, 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 up the stock market — especially riding the wave of confidence in artificial intelligence.
“Stocks are working for people now,” Mr. Brenner said. “I wonder how long it will be before we run into some trouble.”
According to data from Howard Silverblatt at S&P, Magnificent Seven Group stocks, which lifted the market last year, accounted for nearly 40 percent of the S&P 500's gain in the first three months.
However, the steep declines of Apple and Tesla have pushed the market to new highs even as smaller companies — Nvidia, Meta, Amazon and Microsoft — have pushed the market to new heights. They are responsible for half of the index's profits.
“Incomes are good, interest rates are at their peak and employment is high, consumers are willing to spend their paychecks,” Mr. Silverblatt said. “So the market continues.”
