By: Matt Garrott

The S&P 500 got off to a hot start this year, up over 10% in the first quarter, but it may make sense to focus on what hasn’t happened this year rather than what has happened.

Coming into 2024, forecasters expected 6 or 7 rate cuts from the Federal Reserve.  Economic data has not aligned with predictions.  Inflation lingers above the Fed’s target while unemployment remains low.  Financial institutions now expect 2-3 rate cuts this year even as some Federal Reserve governors talk about seeing the need for only one or two.  Expectations of 6-7 rate cuts may have buoyed early stock market gains, but the reality of fewer cuts has not dampened returns so far.

For several years now, the S&P 500’s return has been driven by a handful of mega-cap names.  What would happen if the opposite happened, and fortunes reversed?  According to Bespoke, Apple’s stock, which made up a whopping 7% of the S&P 500 at one point, is down 6% over the last 200 trading days.  Meanwhile, the S&P 500 is up 21% during that time.  The worst performing stock of the S&P 500 so far this year is former Magnificent 7 member Tesla, down nearly 30%.

I was speaking with a money manager last week and he told me, “Certainty begets lower returns.”  Economic data and market headlines are pointing in a dozen different directions so maybe he’s right.  On their own, disappearing rate cuts or negative returns from a mega-cap stock would have sunk market returns in previous years.  Both items are in play simultaneously this year, yet stocks are at all-time highs.