Market Commentary & Investment Outlook Q1 2024

Written by Canty Financial - Published on March 27, 2024

As we navigate through the first quarter of 2024, the economic and financial landscape presents a unique set of challenges and opportunities for investors. Drawing from our analysis of recent market developments and forecasts, here's our investment commentary and rationale for our latest rebalance.

Economic Resilience and Soft Landing Scenario

The U.S. economy has shown remarkable resilience, with growth rates exceeding expectations. The strong economy we’ve seen in 2023 and continuing into 2024 reaffirms our belief that a soft landing for the U.S. economy is in play. This would mean that the U.S. would be able to avoid a recession following the Fed’s interest rate tightening cycle. 

The opposite side of our view believes that recent inflation data and stronger-than-expected employment data suggest that the Fed will not be able to lower rates anytime soon. This theory believes that interest rates will remain “higher for longer,” so the Fed can ensure that inflation will not creep back. The Fed is currently in a balancing act between their dual mandates, achieving maximum employment while keeping prices stable.

Monetary Policy: Anticipating Easing

The Federal Reserve's stance appears to be shifting towards easing, with 2 or 3 rate cuts anticipated within the year. In the most recent Federal Reserve meeting, Chair Jerome Powell suggested that reaching the “neutral rate,” which ensures economic growth without causing inflation, will be a challenge. This statement from the Fed reinforces our belief that interest rates are heading lower, although some uncertainty remains about the pace and final destination. 

Such developments have significant implications for our investment strategy, particularly regarding duration and interest rate-sensitive assets.

Investment Strategy Recent Rebalance

Overweight in U.S. Large Caps: Reflecting the economy's strength and the Federal Reserve's dovish pivot, we continue to favor large-cap U.S. equities. This preference is based on these companies' strong growth prospects, stable balance sheets, and resilience in the face of economic uncertainties.

Increasing bond duration: In response to the expected fluctuations in interest rates and the anticipated easing cycle, we have increased the average duration of our bond funds. This involves a combination of government and corporate bonds, which would experience considerable gains if interest rates decrease. We believe that the likelihood of interest rates significantly increasing from their current levels is very low.

Increasing exposure to small & mid-cap companies: With the high interest rate environment over the past couple of years, the cost of borrowing funds for small and mid-cap companies was unusually high. As interest rates head lower, these companies should finally see some performance to the upside. We have increased our small and mid-cap positions from an underweight position to a neutral position across our portfolios. 

Cautious on International & Emerging Markets: Given the mixed economic signals and the specific challenges faced by certain international markets, we recommend a cautious stance on positions in European equities. We see some potential opportunities in emerging markets, particularly those positioned to benefit from global monetary easing and robust economic indicators. However, this engagement should be tempered with caution due to inherent risks.

Trade Rationale

Our recent rebalance reflects our analysis that, despite the potential for continued economic growth and a moderate inflation trajectory, there are still risks that justify a balanced and strategic approach to asset allocation. The potential for rate cuts, alongside improvements in supply-side dynamics, supports a cautiously optimistic outlook for U.S. equities and fixed-income investments. However, recent shifts in inflation and employment data highlight the importance of vigilance and adaptability in our investment strategy.

In summary, our Q1 2024 investment outlook emphasizes seizing opportunities presented by a resilient U.S. economy and anticipated monetary policy adjustments. By favoring U.S. large caps, increasing bond duration, increasing small to mid-cap exposure, and exercising caution within international markets, we aim to navigate the complexities of the current financial landscape effectively. 

For further details or inquiries about our investment strategy and how it can be tailored to your financial goals, please reach out to our team. We remain committed to navigating the financial markets together, ensuring your investments are well-positioned to capture growth while managing risk.

Please call us at 518-885-3230 or 239-435-0090 to let us know if you have questions.  We welcome clients who are interested in financial planning, opening investment accounts, or adding to existing investment accounts.

Bill Canty, CFP®, CPA, Financial Planner

Joe Canty, CFP®, Financial Planner

Ed Canty, CFP®, Financial Planner

Tina Alteri, CPA, Tax Advisor

Maureen Walsh, EA, Tax Advisor

Subscribe to Our Monthly Newsletter!

preparing for retirement guide
Stay Up to Date on the Latest Financial Planning News.

Latest Posts

Subscribe to Our Monthly Newsletter!

Stay Up to Date on the Latest Financial Planning News.
Canty Financial Management
20 Church Avenue 
Ballston Spa, NY, 12020

5129 Castello Drive Suite #1
Naples, FL, 34103
Michael Canty Memorial Fund
Legal, privacy, copyright and trademark information.

Ready to create your financial roadmap?

Want to see if our services are right for you?
Schedule a complimentary, 15-minute phone call today.
Schedule a Call
Copyright © 1987 – 2024 Canty Financial Management Inc. All Rights Reserved.
Website managed by Stallion Cognitive
heartchevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram