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Q1 Market Update 2024- The Inflation & Interest Rate Story Thumbnail

Q1 Market Update 2024- The Inflation & Interest Rate Story

For many years, market participants have been closely following every statement made by the Federal Reserve Chairperson and every data point used by the Fed to guide its decisions. However, it has become increasingly tiresome. While monetary policy, including interest rates, is undeniably important, the daily fluctuations caused by inflation reports and their potential influence on the Fed's interest rate decisions have become excessive.

In recent months and years, we have repeatedly observed significant single-day market fluctuations driven by concerns about the Federal Reserve's potential reactions to specific data points. The irony lies in the fact that, frequently, after these significant market movements, contradictory data points emerge, challenging the validity of the initial concerns.

If you're not sure what I’m referring to, the basic story is this: The Federal Reserve (Fed) plays a crucial role in managing the economy, and market participants closely monitor its decisions, particularly regarding interest rates. Market participants are eager for the Fed to reduce interest rates, but the Fed is hesitant to do so until it believes inflation is under control and closer to its 2% target. As a result, every report that announces inflation figures higher or lower than expected causes the market to react (often more dramatically than it should). This has led to increased volatility in the markets. Despite this, the economy, and by extension, the market, has been performing well.

Even with the increased volatility, markets performed quite well in Q1, as you can see below:

The chart shows how the various U.S. stock styles have performed as of the end of Q1. Large cap stocks have outperformed Mid and Small cap stocks. Growth companies have slightly outperformed value. Unfortunately, the first two weeks of April have been negative for the markets, so the numbers as of this writing are not quite as green as they were on 3/31/24.

Looking at the broader investment universe, Bonds are down for the year, and U.S. stocks have outperformed international and emerging markets.

 We expect that once the Fed finally begins its interest cutting campaign, bonds will bounce back favorably, and stocks will normalize their volatility. Overall, this has been a good year up to this point, and we are optimistic that 2024 can continue in the right direction. 

Written by: Brice Carter

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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