U.S. stocks were up 10% in Q1. Artificial Intelligence (AI) is a key factor fueling growth.
Image created using Microsoft’s AI image creator. Prompt: Create an image depicting the stock market increasing.
During Today’s Q1 Stock Market Overview Discussion, We:
- Highlight Q1 2024 stock market results, including highest performer and underdog.
- Explain what’s driving the results.
- Clarify a misconception about U.S. oil availability.
- Describe how AI could make your current work commute faster.
- Provide inflation and interest rate updates.
Q1 Stock Market Overview
2024 is off to a strong financial start (U.S. stocks are up 10% quarter over quarter). Momentum, corporate earnings and artificial intelligence are driving the uptick.
Nevertheless, election years tend to be volatile.
Why?
Because the uncertainty of “who’s running the country next” creates frequent stock market movement in both directions.
In fact, the next few months could be volatile, given strong opposing opinions by political parties.
Overall, we’re optimistic about the financial environment.
As a reminder, volatility often creates opportunities, i.e., buying stocks on sale.
Related: Read our recent client letter: Upcoming Election vs. Your Portfolio.
Q1 2024 Stock Market Results
January 1 through March 31
- The U.S. stock market increased by 10%.
- International stocks were up just over 4.5%. The U.S. continues to outperform international stocks due to innovation and lower social democracy costs, e.g., government provided education, healthcare, public pensions, etc.
- Bonds were slightly negative, down less than 1%.
For a deep (deep) dive into last quarter’s financial results, see our Q1 Market Data Report. It includes data by asset class and equity style.
The stock market’s highest performing sector was energy, up 13.5%.
Overall, energy companies are doing well.
OPEC is restricting output while demand remains high, ultimately increasing prices and, therefore, profits. A barrel of crude oil is about $85.
Current U.S. Oil Production
Given media coverage, many Americans believe that U.S oil companies are not producing as much oil as in previous years.
The fact is, U.S. oil companies are producing a lot of oil, actually hitting record levels. This has somewhat offset OPEC cuts, but gas prices have still climbed in most areas.
For more details, read the U.S. Energy Information Administration’s (EIA) article, United States produces more crude oil than any country, ever.
Q1 Underdog: Real Estate
The real estate sector was flat last quarter, down 0.65%.
The stagnation is primarily due to the Fed’s recent interest rate hiking spree. Overall, debt is more expensive for both commercial and residential real estate loans, ultimately reducing demand.
Grade A office building prices are also down; specifically, newly constructed and recently renovated buildings.
Interestingly, hedge funds are considering buying these buildings. Typically, hedge funds buy and sell financial instruments, e.g., bonds, commodities, equities and other currencies.
Nevertheless, hedge funds go where they see the biggest value.
Big Tech & Artificial Intelligence (AI)
U.S. tech stocks were up roughly 9% last quarter. Much of this growth is due to the AI frenzy. Keep in mind, AI has been around for a while. For example, Google’s search engine is AI driven. Nevertheless, the technology has made significant progress, including the following:
Brief “Discussion” with Google’s Gemini AI App
We prompted Google’s Gemini AI App with the following question. The answers are impressive. (To manage reading length, we didn’t include the full response.)
Prompt:
What are some unique abilities of AI beyond writing a college student’s English paper?
Start Reply:
You’re absolutely right, AI has a vast array of capabilities that extend far beyond mimicking human tasks like writing papers. Here are some areas where AI shines with unique abilities:
Pattern recognition and anomaly detection: AI excels at finding patterns and anomalies in massive datasets that humans would miss. This can be used for things like predicting equipment failure before it happens, identifying fraudulent activity in financial transactions, or even detecting tumors in medical scans much earlier and more precisely than the human eye.
Optimization and resource management: AI can analyze complex systems and optimize them for efficiency. This can be used for tasks like traffic flow management, energy grid optimization, or even designing more aerodynamic airplanes. Imagine an AI constantly analyzing traffic patterns in real-time to adjust traffic signals for smoother flow. (Yes, please!)
Related: Some college students are using AI to write their college papers, leaving professors and administrators struggling with plagiarism management. A key hurdle is reliably detecting AI usage. Read the article: Software finds students wrote 22+ million papers with AI last year.
Inflation & Interest Rates
Inflation is down, hovering around 3.4% from an average 8% high in 2022. (The Fed’s target is 2%.)
Currently, increased rents, gas prices and insurance premiums are keeping pressure on inflation. Car insurance has surged 22.2% from a year earlier. Insurers have been hiking premiums to offset their rising costs due to extreme weather and the higher cost of new automobiles.
Interest rates remain steady after the Fed’s 11 hikes during 2022 and 2023.
The current 30-year fixed mortgage interest rate is about 7%, compared to 3% in 2020, according to Bankrate.
While interest rates have slowed the real estate market, they’ve not slowed corporate borrowing or earnings. Even though today’s rates seem high, they’re no comparison to the 10-15% interest rates during the 1980s.
In general, most of the rate hike impact gets passed on to consumers.
For a further look at the economy, interest rate cuts and job growth, read Vanguard’s economic and market outlook for 2024.
Before You Go
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