Q1 2024 Market Review and Outlook
A noticeable shift occurred in the markets this quarter. After a strong run over the past two years, US stocks hit a roadblock while diversification outside of US stocks has rewarded disciplined investors. Growth and small-cap stocks led the pullback, as softer economic data and renewed uncertainty around tariffs and economic policy caused investors to reassess corporate earnings potential and stock valuations. The S&P 500 experienced a correction of just over 10% from its mid-February highs. Small-cap stocks are off 17% from their highs last reached around Thanksgiving. Volatility returned as well, with the market posting 21 days of +/-1% moves—more than twice the level seen in Q1 2024.
While US stocks declined, international stocks and bonds had solid returns in the quarter. Coming into 2025, global markets were trading at record-low valuations relative to the US. They were inexpensively priced and just needed a catalyst. That spark came in the form of renewed fiscal commitments from European governments following signals that the US would be scaling back its defense spending in the region. Germany pledged substantial investments in defense and infrastructure, prompting other European nations to follow. This marked a policy shift away from austerity and sparked rallies in European defense, construction, and financial stocks.
Bonds also posted gains this year, and over the past 12 months, have pieced together the kind of returns that we expect from stocks. Notably, bond markets and interest rates have not carried the same level of volatility seen in the US stock market. While trade policy and economic growth are uncertain, the bond markets are largely acting normally, and investors are benefiting from higher yields.
Investment Strategy
Our investment strategy has remained unchanged this quarter. Our diversified structure has helped navigate the challenges in US stocks. Within large-cap US stocks, our mix of value and growth continues to prove effective. The Vanguard Value Index ETF, a key component of our US large-cap stock exposure, advanced 2.63%—outpacing the S&P 500 by 6.9%. This performance underscores the value of maintaining balance across different investment styles within the broader market.
We remain committed to our long-term investment approach and are not making reactive shifts in response to short-term market movements. That said, we are not standing still. As part of our disciplined process, we will be rebalancing your portfolio to maintain alignment with your target allocation. This allows us to trim areas of recent strength and reallocate to investments that are now more attractively valued. In addition, we are actively pursuing tax-loss harvesting opportunities in non-retirement accounts. This strategy allows us to capture losses that can be used to offset future gains and potentially reduce your tax bill—an added benefit in the current environment.
Outlook
Uncertainty is the defining theme this quarter. Concerns around tariff policies and evolving economic directives are starting to ripple through the economy. While most broad economic data remains positive for now, sentiment has shifted noticeably since the midpoint of the first quarter. Both consumer and business confidence have meaningfully weakened, largely in response to the unpredictable policy landscape. We expect economic growth for the first quarter to be negative, driven in part by technical factors such as front-loading of imports ahead of tariff changes. While the risk of a recession has risen, we still expect the economy to grow this year—just at a slower pace than initially projected. Early forecasts called for 2.0% to 2.5% growth, but current expectations are closer to 1.0%.
We’re closely monitoring key indicators like the job market, consumer confidence, and business spending. Labor market data is starting to soften, and consumer confidence is closely tied to this. For the first time since the pandemic recovery, consumers are showing signs they are hesitant to spend. This matters because consumer spending makes up roughly 70% of U.S. economic activity. People are now factoring in the possibility of higher prices ahead, mainly due to tariffs. This is further weighing on confidence.
As we look ahead, our investment outlook remains positive but less optimistic than at the start of the year, despite heightened uncertainty. Earnings growth is the most durable driver of long-term stock returns, and right now, projections for 2025 suggest we’ll see 8% to 10% earnings growth. While some of the expected impact from tariffs is beginning to be reflected in these estimates, we believe companies are still well-positioned to deliver healthy revenue gains, even if profits are compressed slightly due to the higher cost of importing goods due to recent tariffs. That said, with stock valuations already running above average, we think the path to further gains will depend on companies continuing to grow their earnings.
The S&P 500 experienced a correction in the first quarter, which is a 10% drop in stocks. History tells us that these pullbacks can be unsettling but not uncommon. Since World War II, there have been 48 corrections, and only 12 of them evolved into bear markets. That means 75% of the time, the market stabilizes and resumes its upward trend. In fact, following the last 15 corrections, the S&P 500 was higher 60% of the time three months later and 85% of the time one year later. Corrections often present a buying opportunity.
We continue to see meaningful value in bonds. Today’s starting yields are some of the highest we’ve seen in over a decade, offering attractive return potential. If stocks do not bounce back, bonds are much better positioned to provide a cushion to your portfolio because of the current yield environment. With that being said, the bond markets are not showing any concerns of a recession at this point.
The pace of change early in President Trump’s second term has been rapid, but we suspect we’re nearing a peak in uncertainty. As the dust settles and the flood of new initiatives slows, fundamentals like earnings tend to take center stage again. In short, while the path forward may not be smooth, we remain optimistic about long-term returns for diversified portfolios. That said, we remain vigilant. Markets are moving fast, and we’re here to evaluate and adjust as needed.
About Andrew
Andrew Comstock, CFA® is Principal & Wealth Advisor at Beyond Wealth, a fiduciary financial advisory firm in Overland Park, Kansas, dedicated to empowering clients to make meaningful financial decisions. Serving the Kansas City metro area, Beyond Wealth specializes in helping mid-career professionals, business owners, and individuals navigating life transitions. With a mission to help clients realize meaningful financial goals, Andrew’s proficiency lies in leveraging his background in institutional investment management to create tailored investment strategies. He provides research-driven portfolio management, focusing on helping clients build wealth for key milestones, whether it’s buying a home or funding their children’s education. Alongside Brandy, Andrew combines comprehensive planning with a long-term investment approach, helping clients grow their wealth while enjoying life.
Andrew began his career in institutional investment management, managing portfolios for insurance companies, pension funds, and mutual funds. Inspired by a desire to make a more personal impact, he transitioned to advising individuals directly, bringing his passion for financial empowerment to Beyond Wealth. Known for his commitment to high standards and continuous improvement, Andrew is dedicated to delivering thoughtful, tailored strategies for his clients’ unique financial needs.
Andrew graduated from the University of Tulsa with a BSBA in Finance and obtained the Chartered Financial Analyst® designation. Active within his professional community, he’s a member of the CFA Institute, Kansas City CFA Society, and serves on the University of Tulsa’s Board of Trustees as National Board President of the Alumni Association; Andrew is also involved locally as a member of the Overland Park South Rotary. Outside of work, Andrew is a devoted Kansas City sports fan who loves exploring the city’s vibrant restaurant scene, especially the BBQ hotspots. With dual citizenship in the U.S. and Ireland and experience living in Switzerland, he’s an avid traveler who’s visited 37 countries and counting. Andrew is also a proud cancer survivor, a perspective that reinforces his commitment to helping families feel confident about their financial futures while embracing the present. To learn more about Andrew, connect with him on LinkedIn.