In the first quarter of 2024, the market experienced a smooth rally with clear plotlines of economic growth, favorable labor market conditions, and record highs in stock prices. However, the second quarter has brought about some complications, particularly with a resurgence of inflation worries and bond market volatility. The recent warmer-than-expected CPI reading has sparked concerns about the tradeoffs between growth, inflation, valuation, and Federal Reserve policy. This led to a 1.5% weekly drop in the S&P 500, indicating a shift in market character and a test of the rally’s resilience.
Despite the recent challenges, analysts believe that the current market backdrop still favors a bull market. The rally from October 2023 through March 2024 suggests that the market is not yet at its peak, with pullbacks being contained and ultimately buyable. While the recent setback in the market was somewhat expected, there is still optimism surrounding corporate earnings recovery and the potential for rate cuts by the Fed. Market reactions may expose pockets of “excess belief” among investors, but there is a possibility of a buying opportunity as we progress through the reporting period with consistent positive surprises.
As the market undergoes a reset of attitudes with short-term momentum broken, investors are navigating through a period of flux and uncertainty. The recent market actions, such as the jumpiness in the bond market and the surge in gold prices, reflect trader anxiety and a rebuilding of a wall of worry. While the market may be grappling with challenges in bridging the story from setup to conclusion, returning to a solid outline of the current market backdrop can provide clarity and guidance amidst the turbulence.