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  • Jonathan Poyer

Risk On for Q1 - But Returns are Broadening Beyond Tech and Indices are at All-Time Highs

Equities got off to a roaring start in Q1 with the S&P 500 delivering a 10.16% return. Nvidia (NVDA) returned 82% in Q1, contributing 4.1% to the return of the S&P 500 while the other 499 stocks contributed the other 6.5%. Even with the skewed index performance from Nvidia, we saw a broadening out beyond the mega-cap tech and magnificent seven sphere of names. A chart from Goldman Sachs highlights the performance spectrum:

The top 5 performers of the index:

1 - Super Micro Computer (SMCI) - +255%

2 - Nvidia (NVDA) - +82%

3 - Constellation Energy (CEG) - +58%

4 - Deckers Outdoor (DECK) - +41%

5 - Micron Technology (MU) - +38%

Some other notable names:

Disney (DIS) - +35.52%%

Progressive (PGR) - +29.85%

Oracle (ORCL) - +19.14%

Merck (MRK) - +21.03%

Marathon Petroleum (MPC) - +35.82%

Meta (META) - +37.19%

Valero Energy Corp. (VLO) - +31.30%

The first quarter was risk-on as equities hit all-time highs in each month of the first quarter. On the flip side, volatility acted somewhat curiously in the first quarter, actually rising ever so slightly (by about half a point in the VIX) despite the strong rally in US equities. Part of what is happening in the volatility space is an inversion of the classic mantra that markets take the stairs up and elevator down. Market participants are being surprised by the speed and magnitude of the upside moves versus typically being surprised by the downside, with the S&P seeing about 3% more volatility on market up moves than down moves as of the middle of the first quarter. All of this combined is likely what's keeping a bit of a bid in volatility pricing.

Overall, it seems like quality is the name of the game going forward. Bankruptcies are on the rise and over-levered stocks still in the penalty box. We expect bankruptcies continue to rise as companies are forced to refinance their debts into higher rate debt. Many businesses will struggle in the coming years.

  • What happens now that we are at all-time highs?

  • Does the old market axiom, "the year goes as January goes", prove true this year?

  • Have we already seen the year's gains, leaving the rest of the year with a back-and-forth affair?

  • Will investors "sell the news" after having "bought the rumor" for much of the past six months when the Fed finally does cut rates?

Investors need to be careful but the start to 2024 has been exciting!

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