The Pause That Refreshes
By Tom Richmond, Co-Head of Taxable SMA Strategies, Senior Portfolio Manager
The first quarter of 2024 was relatively quiet and relatively good from a domestic, macroeconomic standpoint. Economic activity as measured by real GDP growth was estimated to be a shade over +2%; while not as strong as the pace seen in the second half of 2023, this still represents a solid economy. The unemployment rate crept slightly higher, to 3.9%, mostly owing to a modest increase in the labor force participation rate, but job creation continued at an historically strong pace. Consumer spending was robust, although slightly down from prior quarters, and consumer confidence measures showed continued optimism. Business fixed investment was likewise steady. If there was any fly in the macro-ointment it may have been that gauges of inflation, which had been falling steadily for many months, were reported as ‘stickier’ in January and February – with the core rate of Personal Consumption Expenditure (PCE) inflation falling marginally from 2.9% to 2.8% over the period.
Seeing this, the Federal Reserve (Fed) continued to preach data dependence and patience regarding the eventual and widely assumed loosening of monetary policy. Despite the continuing rhetoric that seems to lean hawkish, the most recent Summary of Economic Projections (the “Dot Plot”) still showed that the median projection of Committee Members was
for three rate cuts in the Federal Funds target before the end of the year. While an overly exuberant market had priced in several more cuts than that at the end of last year, the first several weeks of the year saw investors fall in line with the Fed’s thinking, leading to higher rates across the yield curve. The calm backdrop, however, as you will read further, led to good performance by, and demand for, risk assets across virtually all sectors of the market.
