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Apr 11, 2024

2024 1st Quarter

CPWA Newsletter Main

From the Portfolio Management Team

The first quarter of 2024 was very strong for equities with the S&P 500 up 10.6% and the Nasdaq Composite up 9.3%, but bonds fared poorly with the Bloomberg US Aggregate Bond Index down 0.8%.

Stocks were stellar and bonds were a bummer.

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For equities, it was a story of fantastic results from Meta (Facebook) and NVIDIA as artificial intelligence (AI) continues to generate both buzz and booming profits. Most other companies did well, too, as profits per share for the S&P 500 grew 4%—above market expectations. Fixed income, in contrast, struggled as interest rates climbed. We entered the year with market participants thinking the Federal Reserve would cut interest rates six or seven times. Over the quarter, though, it became apparent that inflation isn’t down and out, and the Fed signaled it is more likely to cut rates only three times in 2024. This pushed interest rates up and bond prices down, which explains the lackluster fixed income results.

The Economy
Despite the naysayers, the economy continues to power along with economic growth somewhere between two and three percent. This may not seem like much, but compared to Europe, Japan, and the rest of the developed world, where less than one percent growth is the norm, the US economy looks outstanding. Sure, India, Brazil, and China are growing faster, but that’s not translating into profit growth as well as it is in the U.S. The list of good news is long: inflation continues trending down, consumer spending is strong, manufacturers seem to be rebounding, and business and individual balance sheets are as strong as they’ve been in decades.

U.S. economic growth looks like it is clocking in at 2-3%.

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Sometimes, too much good news causes stock prices to be priced for perfection. If less than perfect happens—and it often does—then prices pull back. A ten to fifteen percent decline is normal almost every year. Possible negative catalysts could be election year antics, higher than expected inflation, worsening employment figures, or geopolitical tensions between China/Taiwan, Russia/Ukraine, Israel/Hamas or Houthi rebels/Persian Gulf shipping. Forewarned is forearmed.

Looking Forward
With stock prices higher and fixed income lower, we have been considering rebalancing on the equity side and extending our bond maturities to lock in higher interest rates. Within equities, we think international, low-priced, and smaller companies look good, especially relative to large, tech-related businesses. Within fixed income, we continue to like well-selected corporate bonds and mortgage-backed securities, both selling at high yields relative to government treasuries. We think a balanced approach between stocks and bonds still makes the most sense, depending on risk tolerance and financial goals. We expect a pullback in stock prices at some point, in which case we would look to put some of our cash to work. On the fixed income side, we already used the increase in long-term rates during the first quarter to buy longer-dated treasuries, thus locking in excellent yields while potentially benefiting from price appreciation if the economy weakens and rates fall.

First Quarter 2024 Reports
Your quarterly portfolio reports have been uploaded to your CPWA client portal. If you don't recall your login and/or need your password reset then please email us.

Announcing a new Teammate!
We are thrilled to announce a new addition to the Cerro Pacific team. Timothy Reyna joined the group a few weeks ago, bringing a strong financial planning and tech-savvy background. In 2019, Tim graduated from the University of Arizona and accepted a position with Charles Schwab. He quickly rose in the ranks, ultimately achieving the role of Wealth Advisor within a group that focuses on high net worth clients. As a Certified Financial Planner™ professional, Tim has a specific focus on financial planning and portfolio analysis all geared toward helping clients with retirement planning, income distribution planning, advanced estate planning techniques, and charitable giving strategies. Tim and his wife McKenzie (Lyle’s daughter) recently relocated to San Luis from Phoenix along with their two dogs and a cat. Although in need of a few more sweaters, Tim and McKenzie are thrilled to call San Luis Obispo home!


Cerro Pacific Wealth Advisors LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Cerro Pacific Wealth Advisors LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Cerro Pacific Wealth Advisors LLC unless a client service agreement is in place.