After a stellar start to the year for stocks, investors are on guard for potential bumps in the second quarter as they gauge whether the Federal Reserve delivers on an expected interest rate cut by June and turn their focus on the health of upcoming earnings.
“The market and the Fed are finally aligned on expectations, but that puts even more pressure on every economic report that comes out because it doesn’t take a lot to make everyone run the same way,” said Joe Kalish, Chief Global Macro Strategist at Ned Davis Research. “We are expecting more volatility if we don’t see more progress on the inflation front.”
“Right now the only thing the market cares about is whether the Fed remains in control even if the economy re-accelerates,” Alonzo said. “If that idea was upset somewhat and the Fed had to imply that rate hikes were back on the table, that would be a shock to investors and cause a real issue for all assets.”
Still, strong momentum in the first quarter has historically carried over to the following quarter, said Keith Lerner, Co-Chief Investment Officer at Truist Advisory Services. Of the 11 times that the S&P 500 has posted a total return of 10% or more in the first quarter, the market continued to advance in the second quarter 9 times, with an average gain of 6.2%, he said.
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