In the first quarter of 2024, the four major North American indexes – the Toronto Stock Exchange Composite Index (TSX), the S&P 500 Index (S&P), the Dow Jones Industrial Average (DJIA), and the Nasdaq Composite Index (Nasdaq) – successfully continued the upward trajectory initiated by the rally that started in November 2023. Much like last year, the first quarter closed on a high note, hopefully paving the way for another robust year of corporate growth and rising share prices. Fueled by technological advancements, strong corporate earnings, and hopes of interest rate cuts, the market’s resilience might signal more good news for investors.
Let’s take a closer look at what had the bulls running for the first three months of 2024….
First Quarter Portfolio Update
First Quarter Review
For the first quarter, the TSX (SPTSX) climbed 5.8%, the S&P (SPX) surged 10.2%, the DJIA (INDU) rose 5.6% while the Nasdaq (CCMP) grew 9.1%.
In 2023, seven dominant tech giants, known as the “Magnificent 7,” namely Apple (NASD: AAPL), Microsoft (NASD: MSFT), Alphabet (NASD: GOOGL), Amazon (NASD: AMZN), Nvidia (NASD: NVDA), Tesla (NASD: TSLA), and Meta Platforms (NASD: META), led a narrow but impressive rally, driven by explosive growth in artificial intelligence (AI) technology. As we moved into 2024, the market rally widened, although tech stocks still played a key role. However, the Magnificent 7 lost some steam, with Apple and Tesla stumbling due to slowing growth. Since February, other companies, such as Berkshire Hathaway (NYSE: BRK.B), Eli Lilly (NYSE: LLY), and Broadcom (NASD: AVGO), have stepped in to fill the gap left by Apple and Tesla’s decline. Many other firms have reported earnings that beat expectations, pushing share prices and indexes higher, as shown in the chart above.
Now, if you look at the chart below, you’ll see that the first quarter of 2024 saw solid gains across all four main indexes, each rising for five consecutive months. For example, the S&P surged by 10%, marking its best first-quarter performance since 2019. In the US, the tech sector continued to shine, buoyed by the exciting prospects in AI. Strong economic data showed that the American economy and job market remained robust, with consumer sentiment hitting its highest point since 2021. This optimism is partly due to hopes that the US Federal Reserve (Fed) might cut interest rates later this year.
In Canada, investor optimism was also high, boosted by the anticipated Fed rate cut, rising commodity prices, and expectations that the Bank of Canada (BoC) would also lower rates.
Several factors fueled the market’s strong performance: positive economic data in both the US and Canada, a tech sector rally driven by AI excitement, and the potential shift in Fed policy from tightening to easing (raising interest rates to lowering interest rates). Investors are gaining confidence that the Fed can achieve a ‘soft landing,’ where inflation drops to 2% while the economy stays strong.
The TSX rode the wave of broader market trends but got an extra boost from rising commodity prices, especially oil and gas. A weaker Canadian dollar compared to the US dollar also made Canadian exports more attractive on the global stage, adding to the momentum. Plus, expectations of a rate cut from the Bank of Canada (BoC) further fueled investor optimism.
However, it wasn’t all smooth sailing in the first quarter. High inflation delayed expectations for the interest rate cuts initially projected for March.
All in all, the first quarter of 2024 was marked by a strong bull run in North American markets, driven by positive economic indicators, a thriving tech sector, and hopes for lower interest rates from central banks. Let’s hope the bulls keep running in the second quarter! 😊
First Quarter Portfolio Updates
The chart below shows the progress of each portfolio over the quarter, with gains every month followed by a pullback in March. Despite the dip, Portfolios 1 and 3 continued to appreciate in value each month, while Portfolio 2 lost ground in March. As you can see, Portfolio 1 consistently outperformed the other two portfolios each month. This strong performance was largely driven by heavyweight technology companies, especially Nvidia. Now, let’s take a brief look at what happened with each portfolio over the quarter.
Portfolio 1 for the first quarter: UP 
Portfolio 1 increased in value each month of the quarter, consistently outperforming both the other portfolios and the indexes. It benefited from strong performances by the heavyweight technology firms, especially semiconductor companies. I am very pleased with Portfolio 1’s performance this quarter. 😊
In an effort to streamline the portfolio, I sold off underperformers and companies whose growth has stalled. While most of the stocks sold were at a loss, I successfully locked in gains with Cargojet, kneat.com, and Liberty Media.
Activity: Sold: Liberty Media, Quinsam Capital, fuboTV, Roku, Teladoc, Progeny, Cargojet, Tesla, kneat.com.
Bought: Walmart.
Portfolio 2 for the first quarter: UP
Portfolio 2 overcame a sluggish March to finish the first quarter with an overall gain. The overall market’s upward trend at the beginning of the quarter, along with strong performances from Disney (NYSE: DIS) and Hammond Power Solutions (TSE: HPS.A) in February, contributed to this positive outcome. Despite the challenges, the portfolio ended the quarter on a positive note—a small gain is always preferable to a loss. 😊
Activity: Sold: kneat.com.
Portfolio 3 for the first quarter: UP
Unlike Portfolio 2, Portfolio 3 increased in value each month of the quarter. However, it was the worst performer among the portfolios and underperformed all the indexes, primarily due to a poor performance by Shopify (TSE: SHOP) in February. Despite this, a win is a win, so I will take it and move on.
Activity: Sold: kneat.com.
Looking forward
Last year, investors closely monitored the Fed for signs of ending interest rate hikes, triggering a robust market rally, especially in technology stocks. This year, the focus remains on the Fed, albeit with a twist – investors are now anticipating potential rate cuts. While this rally is broader, spanning across more sectors, inflation remains a concern, hovering around 3%.
As we enter the second quarter, inflation and the Fed’s actions will remain in the spotlight. The critical question is whether the Fed will initiate rate cuts and achieve a soft landing for the economy. The first quarter offered some promising signs, with the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, meeting expectations or showing a slight improvement with inflation down slightly more than expected.
In the US, the ongoing growth of the technology sector, a key driver of the recent rally, could propel indexes higher. This period will be pivotal in determining whether substantial investments in AI and its infrastructure translate into tangible profits. The broadening of the rally beyond tech is expected to continue in Q2, potentially reshuffling the best-performing sectors. Value stocks, (more traditional companies with proven track records that are undervalued for some reason) which have trailed behind tech in recent years, may even outperform, as some experts suggest.
In Canada, a potential interest rate cut by the BoC could weaken the Canadian dollar against the US dollar. While this may benefit Canadian exports, it could also raise import costs, potentially driving up domestic prices and putting upward pressure on inflation. Additionally, the Canadian market, heavily weighted towards resource stocks, may face challenges if commodity prices decline, impacting overall market performance.
That said, my track record demonstrates an inability to predict market movements. 😊 I am optimistic about strong first-quarter earnings and potential rate cut signals from both the BoC and the Fed to stimulate the markets. However, numerous headwinds, including mixed earnings reports, sustained elevated interest rates, concerns about an economic slowdown, and geopolitical uncertainties, could derail a bull market.
Regarding the three portfolios, I plan to continue refining Portfolio 1 to a more manageable 25 – 30 high-quality companies. Across all three portfolios, my focus remains on well-managed companies with a proven history of growth and innovation. I will be more cautious with riskier investments, prioritizing consistency in revenues and earnings and minimizing significant debt.
If there is volatility, it should present some buying opportunities. However, as a long-term investor, I will remain focused on the long game, regardless of short-term fluctuations. Nevertheless, it would be excellent for the bull run to continue. 😊
