Zephyr Financial Solutions

Resilient U.S. Economy Drives Equities Higher

The strong equity bull market raged on during the first quarter as a resilient U.S. economy and optimism around artificial intelligence (AI) supported the rally. The S&P 500 index (+10.56%) reached record highs despite growing expectations that the pace of interest rate cuts will be slower than previous forecasts. Global shares also benefited from the solid U.S. economy as the MSCI World index posted a +9.01% return.

As expected, the Federal Reserve (Fed) kept interest rates at a range of 5.25%-5.5% and the “higher for longer” mantra impacted fixed income as the Bloomberg U.S. Aggregate index fell a -0.78% during the quarter.

Better-than-expected corporate earnings and continued expectations for rate cuts later this year, albeit at a much slower pace than previous forecasts, supported U.S. equity prices. Optimism over AI provided a boost for technology stocks, particularly those that are viewed as the most likely to benefit from the AI boom. The communication services, energy and financial sectors outperformed while the consumer discretionary and utilities sectors underperformed. Despite lagging growth stocks (Russell 3000 Growth index, +11.23%), value stocks benefited from a rise in Treasury yields to post a +8.62% (Russell 3000 Value index) return. Below are some of the strategies that make up the PSN Top Guns Large Cap Growth Universe.

The AI boom and ongoing optimism regarding AI-related technologies also benefited global equities. Additionally, solid economic data and colling inflation in the eurozone supported equity prices as the MSCI EAFE index posted a +5.93% return during the quarter. The information technology sector lead the way followed by strong performance from financials, consumer discretionary and industrial sectors. The following strategies made the PSN Top Guns list for the Global Equity Universe.

The Fed left interest rates unchanged during the quarter while expectations for monetary policy easing this year were scaled back. U.S. inflation rose slightly which stoked concerns that inflation will remain sticky. Sticky inflation and a resilient U.S. economy lowered enthusiasm for a steep easing of monetary policies. The shift in investor sentiment regarding the direction of interest rates resulted in the U.S. 10-year Treasury yield jumping from 3.87% to 4.21% during the quarter. The broad Bloomberg U.S. Aggregate index fell a -0.78%, while riskier high yield bonds, represented by the ICE BofA US Hi Yield Master II index, rose +1.51% during the quarter. Below are some of the strategies that make up the PSN Top Guns High Yield Universe.


PSN Top Guns quarterly commentary is presented by Zephyr's Market Strategist Ryan Nauman whose analysis and research has been shared on financial industry media including WealthManagement.com, Reuters, CNBC, Bloomberg, MarketWatch.com, Yahoo! Finance, and the Wall Street Journal, while being a regular guest on TD Ameritrade Network, Yahoo! Finance, Bloomberg TV, Bloomberg Radio and Chuck Jaffe’s Money Life podcast.