First Quarter Market Review
The markets kicked off 2024 with a robust continuation of the momentum that characterized the end of 2023– a year marked by strong performance across various metrics, as highlighted in our last quarterly reflections blog.
In the first quarter of 2024, global stocks demonstrated substantial growth. The MSCI ACWI IMI, a broad measure of global equities, recorded a 7.72% increase. Leading this rise, US large cap stocks, measured by the S&P 500, advanced by 10.6%. Over the past 12 months, global stocks are up 22.45%. While the US bond market, as measured by the Bloomberg US Aggregate Index, experienced a slight dip of 0.78%, it still posted a positive 1.70% return over the past 12 months.
1/1/2024 to 3/31/2024. Performance in USD. Source: Dimensional Fund Advisors
The markets celebrated a lot of good news as they carried momentum from Q4 of 2023 into Q1 of 2024. The labor market remains robust, evidenced by the persistently low unemployment rate, and GDP (Gross Domestic Product) figures continue to exceed expectations. According to McKinsey, consumer optimism is even on the rise, despite ongoing challenges such as inflation still hovering slightly above 3%, which has kept the Fed from providing some much anticipated interest rate relief.
The Rise of the Magnificent 7
While the broader market narrative evolved slightly in the first quarter of 2024, the standout story remains the exceptional performance of the “Magnificent 7.” This elite group of mega-cap tech stocks comprises industry giants Apple, Microsoft, Nvidia, Meta, Alphabet, Amazon and Tesla. Though primarily recognized as an automaker, Tesla uniquely straddles the fence between technology and automobile manufacturer, reflecting its dual impact on the market.
In 2023, depending on exactly how you measure the combined performance, the collective returns of this group were remarkable, ranging between 75% and 111%. To contextualize this, the S&P 500– which encompasses a broad array of large US companies, yielded a return of 25.67% according to S&P data from the same year. By year’s end, these seven tech giants made up about 28% of the S&P 500, yet they were responsible for approximately 63% of the index’s annual returns. While each of the companies has their own story and unique circumstances, the overarching rationale behind the performance is their roles and integration within artificial intelligence.
Those impressive returns of the “Magnificent 7” have had a very real impact on the investment landscape over the past 18 months. At Abacus, our investment philosophy is based on the premise that markets reward investors for bearing risk over long periods of time. We systematically emphasize certain risk factors or characteristics, such as tilting our portfolios towards smaller and less expensive stocks. While our portfolios have shown strong absolute performance in the recent quarter and the previous year, they are comparatively under-exposed to these gigantic growth stocks. Although this underexposure has led to variability in our relative performance– with some portfolios outperforming and others slightly lagging– we view this as a part of our deliberate risk management strategy. In some cases our portfolios have more than made up for this under exposure, but in other cases we have lagged a bit. We are not overly concerned about this in the long run, but we remain vigilant and proactive in understanding it across all of our portfolios.
Beyond the Headlines: Perspective on FOMO and Investment Realities
Experiencing a sense of missing out on a seemingly obvious investment, such as AI technology, can be particularly disheartening. This sentiment was echoed in a Wall Street Journal article by Jason Zweig, which offered a compelling perspective on fear of missing out (FOMO) using examples from the “Magnificent 7” tech stocks. Zweig discusses the importance of managing your “counterfactuals” –essentially, the outcomes of paths not taken– and highlights how investing uniquely allows us to witness the direct results of our unmade decisions.
Notably, Zweig points out that if an investor had pursued Tesla at the start of November of 2021, motivated by the burgeoning AI trend, they would have seen their investment plummet by over 60% (a figure adjusted up from Zweig’s original 50% estimate due to ongoing struggles in the stock’s performance). This period includes 2023, during which Tesla’s stock soared by more than 100%. Zweig’s insight offers a valuable lesson: If you’re tempted to rue missing out on Tesla’s spectacular rise, it’s equally important to appreciate avoiding a substantial loss by not investing prematurely. This balance in perspective is crucial in understanding that while investments can yield high returns, timing and patience play critical roles in achieving success.
From an investment perspective, it’s important to recognize that headlines can often serve as distractions. While experiencing some FOMO is normal, at the end of the day predicting stock market performance simply isn’t something that anyone can do with any kind of consistency. The reality is that successful investments and missed opportunities occur with nearly equal frequency, and both of these things happen about as often as you would expect them to by chance alone.
In Closing
Navigating the complexities of investing can often challenge our sense of perspective. For instance, the global markets, as measured by the MSCI ACWI IMI, experienced growth of over 7% in the first quarter– a great return by almost any measure. Yet, it’s easy to feel unsettled when headlines spotlight extraordinary gains, like NVIDIA’s surge of over 80% in the same period, potentially sparking feelings of missing out.
At Abacus, we believe in the power of commitment and adherence to one’s investment strategies. History has shown us that such commitment can lead to long-term financial success. As we navigate market changes, Abacus continues to stand by our commitment to provide clients with sound, data-driven advice to help them achieve their financial goals. Your financial well-being is our top priority, and we remain dedicated to assisting you in your journey to financial success.
Should you have any questions or need personalized advice, please don’t hesitate to reach out to your Abacus advisor or schedule a consultation. In a world filled with financial complexities, having a trusted advisor can make all the difference in serving your unique needs.
Sources:
Sharma, Rakesh. “Tesla: Tech Company or Car Company?” Investopedia. 25 June, 2019.
Hill, Stephanie. “A Closer Look at Magnificent Seven Stocks.” Mellon. Feb. 2024.
Taulli, Tom. “What Are the Magnificent 7 Stocks?” Kiplinger. 7 Jan. 2024
S&P Dow Jones Indices. “S&P 500®.”
Disclosure:
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your Abacus account holdings correspond directly to any comparative indices or categories.
Please Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Abacus accounts; and, (3) a description of each comparative benchmark/index is available upon request.
Please Also Note: This material is not intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Abacus Wealth Partners is not an accounting firm. Please consult with your tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.
