The S&P 500 rises to start the year

It's been a strong start to the year for the stock market.

The S&P 500, one of the world's most closely watched stock indexes, rose more than 10% during the first three months of 2024, boosted by 22 record highs.

Nearly 40 percent of stocks in the index are trading above where they were 12 months ago. And even when the index lost ground, it wasn't by much, with only three days so far in 2024 in which the S&P 500 fell more than 1 percent at the close.

This move was driven by renewed appetite for stocks. In March, investors pumped nearly $50 billion into funds that buy stocks in the United States, according to data from EPFR Global.

The modest rise in January, based on expectations that the Federal Reserve would begin cutting interest rates this year, gave way to widespread optimism that the central bank could bring inflation down to its 2 percent target without doing too much damage to the economy. The long-awaited “soft landing”.

The new inflation and spending readings released on Friday were in line with economists' expectations, reinforcing prevailing expectations for Fed interest rate moves. “We don't need to rush into tapering,” Fed Chairman Jerome Powell said at an event on Friday.

In the markets, the exuberance has spread to the riskiest corners of the financial system. Bitcoin continues to trade above $70,000, a mark 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 soared, and the public appearances of Reddit and Trump Media were greeted with a spike in stock prices on the first day of trading. In credit markets, where investors finance companies with bonds and loans, borrowing demand and willingness to lend have swelled – a sign of optimism about the outlook for US companies.

Even as the Fed considers cutting interest rates as much as three times this year, by as much as three-quarters of a percentage point in total, the returns on offer to investors remain well above those elsewhere around the world, helping to keep the flow of… Money. To 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 reason for caution. Cracks are beginning to appear in the economy, as consumers' finances begin to decline. Credit card debt has soared, and the number of people defaulting on their car loans has soared The fastest pace in more than a decade. Some companies are also beginning to struggle, with the number of defaulters on their debt doubling in the past year, according to S&P Global.

The Russell 2000 small business index, a measure of companies most vulnerable to the ebbs and flows of the local economy, also rose during the first three months of the year, but only by 4.3 percent. It's a reminder that big companies are pushing the stock market higher — especially those surfing the wave of optimism about artificial intelligence.

“Stocks are working for people right now,” Mr. Brenner said. “I'm just wondering how long until we have some trouble.”

The group of stocks called the Magnificent Seven that sent the market higher last year has continued to have a major impact, accounting for nearly 40 percent of the S&P 500's rise during the first three months, according to data from S&P's Howard Silverblatt.

However, the sharp declines for Apple and Tesla meant that a smaller group of companies – Nvidia, Meta, Amazon and Microsoft – pushed the market to new heights. They were responsible for half of the index's gains alone.

“Earnings are good, interest rates are below their peak, and employment remains high, with consumers willing to spend their paychecks,” Silverblatt said. “So the market continues to go up.”