Unknown, Knowns

Recently a podcast host referenced a Charlie Brown comic book strip where Marcie, Linus, and Charlie Brown are lying on their backs looking at the clouds. Each character is asked what they see, and they all describe something wildly different. It’s easy to draw parallels to this comic book strip and how our central bank, the Federal Reserve, is digesting incoming economic data and interpreting what is means for interest rates.

One of the most surprising aspects as we reflect on the first quarter of 2024 is that risk assets performed very well despite a fast-shifting narrative around the number of potential interest rate cuts for the year. As we referenced in our year-end 2023 newsletter, “Side Stepping the Wall of Worry”, the expectations of the Fed (3 cuts) did not sync up with market expectations (6-7 cuts). However, as of the end of March, market expectations are mostly in-line with the Fed’s guidance1.

The S&P 500 continued its ascent during the first quarter in a historically meaningful way:

  • Returning +10.6%, it was the best first quarter since 20192.
  • Dating back to 1950, it was the 11th best first quarter out of 74 time periods measured2.
  • Lastly, the flight path differed from the “typical” election year as shown below2.

Looking back to the low on October 27th, 2023, the S&P 500 has returned +28.5% through March 31st, 20243. A stock market rally of that length and magnitude is rare historically. We would expect a period of consolidation or even weakness in the coming quarter or two, which we would view as healthy in the long term for the market.

While it’s more of an unknown how the Fed will choose to set monetary policy moving forward, here are a few observations we know to be true now given current conditions:

  • Interest rates are likely to remain higher than we’ve become accustomed to in recent history.
  • Recessionary signals are not flashing, and one does not appear imminent.
  • The labor market continues to show impeccable strength.
  • Artificial intelligence, or AI, is not a fad and is a secular growth theme in the early innings.

The anchor of the economy continues to be the strength of the labor market. Companies largely have been hesitant to lay off employees due to labor force shortages. Given the lack of labor supply relative to demand, wages have been very strong, which has been a challenge for the Fed. An unanticipated boost to economic growth and the supply of labor has been surging immigration.

The Congressional Budget Office estimates that immigration is adding 3.3 million people to the US population per year in 2023 and 2024, over three times the average number in the prior decade4. The most direct economic impact has been felt in the increase in supply of labor, but also in the demand for housing and rentals. The latter which are at multidecade lows4. While immigration policy will be at the forefront for the 2024 election, there is no denying the economic tailwinds experienced to-date.

Lawful permanent = green card holders
INA = students and other temporary visas
Other = overstayed visas, illegal entrants

While immigration is having a meaningful impact in the near term on the labor market, longer term artificial intelligence, or AI, should provide a positive tailwind that is broad-based across sectors. The immediate winners are more obvious, such as Nvidia, who is the key supplier of graphic processing units, or GPUs, which are the backbone of AI. Less obvious long-term winners may be financial and healthcare companies who own vast amounts of data. Companies are prioritizing plans to leverage, deploy, and monetize AI which will require massive investments. An underappreciated area critical to success is building out the energy infrastructure needed to power the immense data centers. According to the Boston Consulting Group, the data-center share of the US electricity consumption is expected to triple by 2030 to the equivalent of powering 40 million additional US homes5.

Given the backdrop of a solid economy and resilient labor market, we believe there are ample opportunities for equity and fixed income investors. With the Fed likely to be slower to cut interest rates, front-end yields should remain attractive for investors seeking to maximize yield on cash via money market funds and treasuries. We also continue to emphasize modestly extending duration to lock in what we believe to be attractive absolute yields further out the yield curve.

For equities, a strong first quarter typically is followed by a more modest second quarter but is constructive for the remainder of the year as it relates to a higher probability of positive returns6. History has also shown the benefits of investing at all-time highs as strength begets strength.

Just as Charlie Brown, Marcie, and Linus had vastly different interpretations of the clouds, it’s easy to sympathize with the Fed as they have an incredibly tough assignment. Fortunately for our team at Asio, our approach is rooted in having a longer term, strategic mindset. We want to identify and invest in the best businesses or investment opportunities, while paying a reasonable price. This quality-centric approach we believe will allow us to have a higher probability of success in all types of market conditions and help our clients achieve their goals.

Thank you for your continued trust and confidence.

Bryce Goldbach
Portfolio Manager & Wealth Strategist



[1] https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html www.strategas.com “CME FedWatch Tool.”
[2] www.strategas.com “Quarterly Review in Charts.” Monday, April 1, 2024.
[3] www.ycharts.com/indices “Fundamental Chart for S&P 500 (^SPX).” Monday, April 1, 2024.
[4] J.P. Morgan “US: The Economic Effects of Surging Immigration (Feroli).” Tuesday, March 19, 2024.
[5] https://techblog.comsoc.org/2024/03/16/ai-sparks-huge-increase-in-u-s-energy-consumption-and-is-straining-the-power-grid-transmission-distribution-as-a-major-problem/ “AI sparks huge increase in U.S. energy consumption and is straining the power grid; transmission/distribution as a major problem (Weissberger).” Saturday, March 16, 2024.
[6]www.strategas.com “Strong Q1 Complete, Signs of Leadership Rotation Continue.” Monday, April 1, 2024.
[7] J.P. Morgan “US 2Q 2024 Guide to the Markets.” Sunday, March 31, 2024.
[8] https://www.youtube.com/watch?v=ZhJhN85o1dg “Charlie Brown – Clouds.” Monday, April 1, 2024.


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S&P 500 measures the performance of 500 widely held stocks in US equity market. Standard and Poor’s chooses member companies for the index based on market size, liquidity and industry group representation. Included are the stocks of industrial, financial, utility, and transportation companies. Since mid-1989, this composition has been more flexible and the number of issues in each sector has varied. It is market-capitalization weighted.