The
first
quarter
of
2024
was
a
triumph
for
optimists.
Investors
finished
the
quarter
in
high
spirits
after
a
10.24%
rise
in
the Morningstar
US
Market
Index.
Smaller
companies
lagged
their
larger
peers,
with
the US
Small-Mid
Cap
Index rising
8.09%.
International
markets
were
noticeably
more
subdued,
with
the Developed
Markets
ex-US
Index up
5.22%
and
the Emerging
Markets
Index up
2.07%.
While
some
of
their
relative
weakness
can
be
attributed
to
the
strength
of
the
US
dollar,
the
key
driver
of
higher
prices
in
US
markets
is
the
ongoing
optimism
for
large
technology
companies,
illustrated
by
the US
Technology
Index rising
13.07%
over
the
quarter.
The
Week
Ahead
This
week
is
dominated
by
speeches
from
Federal
Reserve
officials,
including
chair
Jerome
Powell,
and
it
ends
with
the
closely
watched
jobs
report
on
Friday.
Any
of
these
events
could
pose
a
challenge
to
the
current
consensus
and
create
volatility
in
asset
prices.
However,
it
is
worth
remembering
that
volatility
is
not
always
the
start
of
a
momentum
reversal!
Inflation
Data
Supports
Fed
Cut
Expectations
Investors
in
technology
companies
were
buoyed
at
the
end
of
last
week
by
benign
inflation
data
(represented
by
Personal
Consumer
Expenditures).
Despite
being
a
little
higher
than
the
January
result,
inflation
remains
in
line
with
investor
expectations
and
supports
the
market
consensus
of
favorable
economic
conditions
for
technology
companies.
Companies
that
can
grow
their
profits
at
a
high
rate
for
a
long
period
are
more
sensitive
to
interest
rates,
which
can
be
thought
of
as
the
price
of
time.
Expectations
of
lower
interest
rates
therefore
support
higher
valuations.
Investors
Tempted
by
Short-Term
Thinking
The
alignment
of
stock
price
movements,
economic
data,
and
expectations
can
create
momentum
independent
of
the
evolving
characteristics
of
the
underlying
companies.
Eventually,
this
momentum
will
subside
and
prices
can
move
sharply
in
the
other
direction.
However,
a
focus
on
price
movement
encourages
short-term
thinking
from
investors,
resulting
in
behavioral
challenges
that
can
derail
their
success.
Morningstar
behavioural
researcher Samantha
Lamas highlighted
some
of
the
challenges
of
portfolio
changes
in this
great
article.
Seeking
Diversification
to
Reduce
Volatility
Rather
than
timing
the
market,
it’s
better
to
seek
diversified
forms
of
return
that
can
reduce
the
overall
volatility
in
your
portfolio
and
help
maintain
a
longer-term
perspective.
For
those
who
want
to
maintain
their
exposure
to
equities,
Morningstar’s
chief
US
strategist Dave
Sekera highlights
the
opportunities
in
smaller
companies
and
those
with
less
exciting
long-term
growth
prospects
in his
latest
market
outlook.
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