Investment Commentary – April 2024

April 5, 2024

The U.S. economy entered 2024 with a good deal of momentum. A much fretted-over recession failed to materialize, and economic growth topped expectations, with GDP growing 3.3% in the fourth quarter and total year growth of more than 3%. At the same time, inflation has trended down significantly, clearing the way for the Federal Reserve to begin cutting interest rates. At the present moment, it appears the Fed may be on track to achieve a soft landing, meaning that inflation will return to the Fed’s 2% target without meaningfully increasing the unemployment rate or tipping the economy into a recession.

This has led to a great deal of optimism in the markets, propelling stock indexes to all-time highs and delivering the S&P 500 its best first quarter since 2019. This optimism, however, may give way to unwarranted exuberance. The “Goldilocks” scenario that the economy has found itself in, in which the economy remains hot enough to sustain growth but cool enough to bring down inflation, is extremely fragile. The markets have already priced in any potential good economic news over the next six months, which means that the most likely surprises will be to the downside. An unexpected economic slowdown, deterioration of the labor market, or resurgence of inflation could roil the markets and disrupt the Fed’s plans.


To read the full Commentary, click here.